PARKE BANCORP, INC.
2019 ANNUAL REPORT TO SHAREHOLDERS
PARKE BANCORP, INC.
2019 ANNUAL REPORT TO SHAREHOLDERS
TABLE OF CONTENTS | |||
Page | |||
Section One | |||
Letter to Shareholders.................................................................................................................................................. | |||
Selected Financial Data............................................................................................................................................... | |||
Management’s Discussion and Analysis of Financial Condition and Results of Operations...................................... | |||
Section Two | |||
Management’s Report on Internal Control Over Financial Reporting........................................................................ | |||
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting | |||
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements.................... | |||
Consolidated Financial Statements............................................................................................................................. | |||
Notes to Consolidated Financial Statements............................................................................................................... | |||
Officers and Corporate Information............................................................................................................................ | |||
To Our Shareholders
Last year we stated how great it is to be able to announce record earnings for our Company for 2018. It is even better when you can make that announcement two years in a row, as we again generated record earnings in 2019. We generated net income of $29.8 million dollars in 2019, a 22.3% increase over our 2018’s earnings. Our financial performance supported a 1.94% return on average assets and a 17.93% return on average equity, these ratios place Parke Bancorp Inc. with the top performers in our peer group. Our total assets grew 15% to $1.7 billion dollars. The strong growth in our total assets and our interest income was driven by the growth of our loan portfolio, which grew 14% to $1.42 billion. We are in the most competitive market in the country for deposits. Deposits are critical to funding our loan portfolio. Although new deposits are expensive, our deposit base grew 13% in 2019 to $1.34 billion. One of the many challenges of achieving strong growth is maintaining the discipline to control expenses. We are pleased that our cost efficiency ratio, which is below 30%, continues to be one of the best in the banking industry. Another critical factor in the financial strength of a bank is capital. Our Company’s total equity increased by $24.4 million in 2019 to $179.4 million, a growth rate of 16%. Parke Bank’s capital position continues to be in excess of the Federal Banking Guidelines for a well-capitalized bank.
As Parke Bank continues to grow, we have carefully expanded our lending footprint. We have loan officers that generate loans in Central New Jersey, Brooklyn and the Bronx. We have hired outside consultants to assist our credit evaluations in these markets. Our primary lending area continues to be South Jersey, Philadelphia and the counties surrounding Philadelphia in Pennsylvania. The strength of the economy and the real estate market in 2019 generated many opportunities.
Growing deposits in our region is a challenge. Our region is the most competitive, highest cost, region in the country. Philadelphia has become a hot market with the strength of the real estate market in addition to new banks entering the Philadelphia market. We have instituted many new digital products that provide the same online conveniences as any other bank. You can now open a new account online, transfer funds and initiate wire transfers. Immediate debit card availability has also been instituted for the convenience of our customers. We were also successful with a new marketing campaign that included billboards and television commercials. The personal service we provide to our customers visiting our branches combined with these online products, marketing campaign and excellent service supported the 13% growth in our deposit base.
The Company’s Board of Directors and Senior Management maintains its’ focus on the importance of enhancing shareholder value. We increased our cash dividends from 14 cents per quarter to 16 cents per quarter in 2019 and recently we declared a stock dividend of 10%. We continue to work hard to generate strong earnings while maintaining a strong capital position, which enhances our bank’s book value.
2020 started very strong, driven by a good economy and continued record-breaking low unemployment. Further support was provided by low interest rates and new trade deals that were established with some of this Country’s trading partners. Unfortunately, a new threat is facing the world, including the United States that is having a major effect on the market, the coronavirus. An outbreak in China has spread to many countries including Italy, Iran, South Korea, the United States. The potential for a pandemic exists. World markets have plunged, including the United States markets. The market value of our stock has also been negatively affected. No one knows how long it will take to halt the spread of this disease, which when accomplished will reopen many of the markets that are now closed due to this threat. It is my hope and belief that a solution to this threat will be found and the world will recover. In fact, it has been reported that new testing and possible vaccines for the virus are being fast tracked for approval by the FDA. Unfortunately, no one knows when the solution will be found.
Parke Bancorp enjoys a strong capital position and is well positioned to withstand this new threat to the economy. We carefully monitor the changes in the market, and we are properly structured to continue building a strong financial institution that our shareholders expect and what we demand of ourselves.
 |  | |
C.R. “Chuck” Pennoni | Vito S. Pantilione | |
Chairman | President and Chief Executive Officer | |
1
Selected Financial Data | |||||||||||||||||||
At or for the Year Ended December, 31 | |||||||||||||||||||
2019 | 2018 | 2017 | 2016 | 2015 | |||||||||||||||
Balance Sheet Data: (in thousands) | |||||||||||||||||||
Assets | $ | 1,681,160 | $ | 1,467,398 | $ | 1,137,452 | $ | 1,016,185 | $ | 885,124 | |||||||||
Loans receivable, Net | 1,398,938 | 1,222,082 | 995,184 | 836,373 | 742,365 | ||||||||||||||
Securities Available for Sale | 26,613 | 31,278 | 37,991 | 44,854 | 42,567 | ||||||||||||||
Securities Held to Maturity | 1,167 | 1,113 | 2,268 | 2,224 | 2,181 | ||||||||||||||
Cash and Cash Equivalents | 191,607 | 154,471 | 42,113 | 70,720 | 27,429 | ||||||||||||||
OREO | 4,727 | 5,124 | 7,248 | 10,528 | 16,629 | ||||||||||||||
Deposits | 1,339,219 | 1,183,873 | 866,383 | 788,694 | 665,210 | ||||||||||||||
Borrowings | 148,053 | 118,053 | 128,053 | 93,053 | 98,053 | ||||||||||||||
Shareholders' Equity | 177,605 | 153,557 | 134,780 | 127,134 | 112,040 | ||||||||||||||
Operational Data: (in thousands) | |||||||||||||||||||
Interest Income | $ | 79,540 | $ | 61,874 | $ | 48,655 | $ | 42,202 | $ | 39,410 | |||||||||
Interest Expense | 22,655 | 13,771 | 8,280 | 6,764 | 5,812 | ||||||||||||||
Net Interest Income | 56,885 | 48,103 | 40,375 | 35,438 | 33,598 | ||||||||||||||
Provision for Loan Losses | 2,700 | 1,800 | 2,500 | 1,462 | 3,040 | ||||||||||||||
Net Interest Income after Provision for Loan Losses | 54,185 | 46,303 | 37,875 | 33,976 | 30,558 | ||||||||||||||
Noninterest Income | 3,839 | 3,407 | 1,645 | 10,290 | 5,080 | ||||||||||||||
Noninterest Expense | 17,952 | 16,295 | 15,293 | 16,628 | 16,852 | ||||||||||||||
Income Before Income Tax Expense | 40,072 | 33,415 | 24,227 | 27,638 | 18,786 | ||||||||||||||
Income Tax Expense | 9,785 | 8,377 | 12,389 | 8,695 | 6,843 | ||||||||||||||
Net Income Attributable to Company and Noncontrolling Interest | 30,287 | 25,038 | 11,838 | 18,943 | 11,943 | ||||||||||||||
Net Income Attributable to Noncontrolling Interest | 446 | 214 | 32 | (433 | ) | (1,246 | ) | ||||||||||||
Preferred Stock Dividend and Discount Accretion | 24 | 446 | 1,119 | 1,200 | 1,200 | ||||||||||||||
Net Income Available to Common Shareholders | $ | 29,817 | $ | 24,378 | $ | 10,751 | $ | 17,310 | $ | 9,497 | |||||||||
Per Share Data: 1 | |||||||||||||||||||
Basic Earnings per Common Share | $ | 2.52 | $ | 2.30 | $ | 1.16 | $ | 1.91 | $ | 1.29 | |||||||||
Diluted Earnings per Common Share | $ | 2.48 | $ | 2.07 | $ | 1.03 | $ | 1.59 | $ | 1.11 | |||||||||
Tangible Book Value per Common Share | $ | 14.95 | $ | 12.98 | $ | 12.36 | $ | 11.89 | $ | 10.35 | |||||||||
Performance Ratios: | |||||||||||||||||||
Return on Average Assets | 1.94 | % | 1.98 | % | 1.13 | % | 1.97 | % | 1.25 | % | |||||||||
Return on Average Common Equity | 17.93 | % | 17.99 | % | 9.40 | % | 17.04 | % | 10.82 | % | |||||||||
Net Interest Margin | 3.75 | % | 3.92 | % | 4.01 | % | 3.96 | % | 4.14 | % | |||||||||
Efficiency Ratio | 29.56 | % | 31.63 | % | 36.39 | % | 45.64 | % | 43.57 | % | |||||||||
Capital Ratios: | |||||||||||||||||||
Equity to Assets | 10.67 | % | 10.56 | % | 11.85 | % | 12.51 | % | 12.68 | % | |||||||||
Common Dividend Payout | 22.42 | % | 21.63 | % | 32.39 | % | 13.19 | % | 19.99 | % | |||||||||
Tier 1 Risk-based Capital2 | 15.42 | % | 15.43 | % | 15.56 | % | 16.67 | % | 15.87 | % | |||||||||
Total Risk-based Capital2 | 16.67 | % | 16.69 | % | 16.81 | % | 17.93 | % | 17.13 | % | |||||||||
Asset Quality Ratios: | |||||||||||||||||||
Nonperforming Loans/Total Loans | 0.38 | % | 0.25 | % | 0.45 | % | 1.30 | % | 1.79 | % | |||||||||
Allowance for Loan Losses/Total Loans | 1.54 | % | 1.54 | % | 1.63 | % | 1.83 | % | 2.13 | % | |||||||||
Allowance for Loan Losses/Non-performing Loans | 407.85 | % | 622.30 | % | 364.68 | % | 137.90 | % | 119.01 | % | |||||||||
1 Per share computations give retroactive effect to stock dividends declared in each of 2016, 2017, 2018, and 2020. The 2020 stock dividend was declared before the Company's 2019 financial statements are issued or are available to be issued. | |||||||||||||||||||
2 Capital ratios for Parke Bank | |||||||||||||||||||
2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Forward Looking Statements
Parke Bancorp, Inc. (the “Company”) may from time to time make written or oral "forward‑looking statements", including statements contained in the Company's filings with the Securities and Exchange Commission (including the Proxy Statement and the Annual Report on Form 10‑K, including the exhibits), in its reports to stockholders and in other communications by the Company, which are made in good faith by the Company.
These forward‑looking statements involve risks and uncertainties, such as statements of the Company's plans, objectives, expectations, estimates and intentions, which are subject to change based on various important factors (some of which are beyond the Company's control). The following factors, among others, could cause the Company's financial performance to differ materially from the plans, objectives, expectations, estimates and intentions expressed in such forward‑looking statements: the strength of the United States economy in general and the strength of the local economies in which Parke Bank (the “Bank”) conducts operations; the effects of, and changes in, trade, monetary and fiscal policies and laws, including interest rate policies of the Board of Governors of the Federal Reserve System, inflation, interest rates, market and monetary fluctuations; the timely development of and acceptance of new products and services of the Bank and the perceived overall value of these products and services by users, including the features, pricing and quality compared to competitors' products and services; the impact of changes in financial services' laws and regulations (including laws concerning taxes, banking, securities and insurance); the effect of any change in federal government enforcement of federal laws affecting the medical-use cannabis industry; technological changes; changes in consumer spending and saving habits; and the success of the Bank at managing the risks resulting from these factors. The Company cautions that the listed factors are not exclusive.
Overview
We are a bank holding company and are headquartered in Washington Township, New Jersey. Through the Bank, we provide personal and business financial services to individuals and small to mid-sized businesses in New Jersey and Pennsylvania. The Bank has branches in Galloway Township, Northfield, Washington Township, Collingswood, New Jersey and Philadelphia, Pennsylvania. The vast majority of our revenue and income is currently generated through the Bank.
We manage our Company for the long term. We are focused on the fundamentals of growing customers, loans, deposits and revenue and improving profitability, while investing for the future and managing risk, expenses and capital. We continue to invest in our products, markets and brand, and embrace our commitments to our customers, shareholders, employees and the communities where we do business. Our approach is concentrated on organically growing and deepening client relationships across our businesses that meet our risk/return measures.
We focus on small to mid - sized business and retail customers and offer a range of loan products, deposit services, and other financial products through our retail branches and other channels. The Company's results of operations are dependent primarily on its net interest income, which is the difference between the interest income earned on its interest earning-assets and the interest expense paid on its interest-bearing liabilities. In our operations, we have three major lines of lending: residential real estate mortgage, commercial real estate mortgage, and construction lending. Our interest income is primarily generated from our lending and investment activities. Our deposit products include checking, savings, money market accounts, and certificates of deposit. The majority of our deposit accounts are obtained through our retail banking business, which provides us with low cost funding to grow our lending efforts. The Company also generates income from loan and deposit fees and other non-interest related activities. The Company's non-interest expense primarily consists of employee compensation, administration, and other operating expenses.
As of December 31, 2019, we had total assets of $1.68 billion, total equity of $179.4 million, and total shareholders' equity of $177.6 million. Net income available to common shareholders for 2019 was $29.8 million. We continue to be in a strong position to deliver attractive growth. In 2019, net income available to common shareholders increased 22.3% over previous year. Total assets increased 14.6% and total equity increased 15.8% compared to December 31, 2018. We also maintained a strong capital position. Our risk based tier 1 capital ratio was 15.4% at December 31, 2019. During 2019, we returned $6.7 million of capital to our common shareholders through common stock dividends.
Our business operations are subject to risks and uncertainties that could material affect our operating results. While economic growth has continued and the macroeconomic environment remains positive, there continue to be various economic, political and other risks and uncertainties that could impact the Company’s businesses and future results, particularly changes in the U.S. economic condition, market interest rates, the Federal Reserve monetary policy, and other government policies and actions of regulatory agencies.
3
Results of Operations
Net Income
We recorded net income available to common shareholders of $29.8 million or $2.52 per basic common share and $2.48 per diluted common share, for the year ended December 31, 2019 compared to $24.4 million, or $2.30 per basic common share and $2.07 per diluted common share for the year ended December 31, 2018, an increase of $5.4 million or 22.3%. The earnings per shares reflected 10% stock dividend declared in January and paid in March 2020, which was retroactively adjusted to 2019 and 2018 share data.
Net Interest Income
Net interest income increased $8.8 million, or 18.3%, to $56.9 million for the year ended 2019 compared to $48.1 million for the year ended 2018. The increase in net interest income was primarily due to loan portfolio growth and higher yields on loans, partially offset by higher interest expense related to deposit growth and higher deposit rates. In addition, interest income from federal funds sold and deposits with banks also contributed to the increase in net interest income for 2019. Interest income for 2019 increased to $79.5 million, an increase of $17.7 million, or 28.6%, from $61.9 million for 2018. Interest expense increased to $22.7 million for 2019, from $13.8 million for 2018.
Interest income increases were primarily driven by:
• | growth in our residential real estate and construction loan portfolios; and |
• | higher yields as a result of higher interest rates; |
• | higher volume and yields in interest bearing deposits. |
These drivers were partially offset by higher interest expense due to the net effect of higher interest rates, as well as growth and mix changes in our interest-bearing liabilities.
Comparative Average Balances, Yields and Rates
The following table presents the average daily balances of assets, liabilities and equity and the respective interest earned or paid on interest-earning assets and interest-bearing liabilities, as well as average annualized rates, for the year ended 2019 and 2018. Interest rate spread is the difference between the average yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities. Net interest margin is net interest income divided by average earning assets. All average balances are daily average balances. Non-accrual loans were included in the computation of average balances and have been reflected in the table as loans carrying a zero yield. The yields set forth below include the effect of deferred fees, discounts and premiums that are amortized or accreted to interest income or expense.
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For the Years Ended December 31, | |||||||||||||||||
2019 | 2018 | ||||||||||||||||
Average Balance | Interest Income/ Expense | Yield/ Cost | Average Balance | Interest Income/ Expense | Yield/ Cost | ||||||||||||
(Dollars in thousands except Yield/ Cost data) | |||||||||||||||||
Assets | |||||||||||||||||
Loans | $ | 1,326,691 | $ | 75,172 | 5.67 | % | $ | 1,110,915 | $ | 59,139 | 5.32 | % | |||||
Investment securities | 36,801 | 1,161 | 3.15 | % | 42,521 | 1,342 | 3.16 | % | |||||||||
Federal funds sold and cash equivalents | 153,236 | 3,207 | 2.09 | % | 73,768 | 1,393 | 1.89 | % | |||||||||
Total interest-earning assets | 1,516,728 | $ | 79,540 | 5.24 | % | 1,227,204 | $ | 61,874 | 5.04 | % | |||||||
Non-interest earning assets | 61,363 | 57,257 | |||||||||||||||
Allowance for loan losses | (20,369 | ) | (17,583 | ) | |||||||||||||
Total assets | $ | 1,557,722 | $ | 1,266,878 | |||||||||||||
Liabilities and Equity | |||||||||||||||||
Interest bearing deposits | |||||||||||||||||
NOWs | $ | 54,540 | $ | 334 | 0.61 | % | $ | 52,596 | $ | 267 | 0.51 | % | |||||
Money markets | 214,251 | 4,543 | 2.12 | % | 176,359 | 2,894 | 1.64 | % | |||||||||
Savings | 113,354 | 594 | 0.52 | % | 154,229 | 818 | 0.53 | % | |||||||||
Time deposits | 434,569 | 10,172 | 2.34 | % | 314,609 | 4,977 | 1.58 | % | |||||||||
Brokered certificates of deposit | 116,131 | 3,044 | 2.62 | % | 100,244 | 2,115 | 2.11 | % | |||||||||
Total interest-bearing deposits | 932,845 | 18,687 | 2.00 | % | 798,037 | 11,071 | 1.39 | % | |||||||||
Borrowings | 121,198 | 3,968 | 3.27 | % | 119,286 | 2,700 | 2.26 | % | |||||||||
Total interest-bearing liabilities | 1,054,043 | $ | 22,655 | 2.15 | % | 917,323 | $ | 13,771 | 1.50 | % | |||||||
Non-interest bearing deposits | 323,146 | 196,068 | |||||||||||||||
Other liabilities | 12,002 | 7,897 | |||||||||||||||
Total liabilities | 1,389,191 | 1,121,288 | |||||||||||||||
Equity | 168,531 | 145,590 | |||||||||||||||
Total liabilities and equity | $ | 1,557,722 | $ | 1,266,878 | |||||||||||||
Net interest income | $ | 56,885 | $ | 48,103 | |||||||||||||
Interest rate spread | 3.09 | % | 3.54 | % | |||||||||||||
Net interest margin | 3.75 | % | 3.92 | % | |||||||||||||
Net interest income and the net interest margin in any one period can be significantly affected by a variety of factors including the mix and overall size of our earning assets portfolio and the cost of funding those assets. We expect net interest income and our net interest margin to fluctuate based on changes in interest rates and changes in the amount and composition of our interest-earning assets and interest-bearing liabilities.
Rate/Volume Analysis
For each category of interest-earning assets and interest-bearing liabilities, information is provided on changes attributable to (i) changes in volume (i.e., changes in volume multiplied by the previous rate) and (ii) changes in rate (i.e., changes in rate multiplied by old volume). For purposes of this table, changes attributable to both rate and volume, which cannot be segregated, have been allocated proportionately to the change due to volume and the change due to rate.
5
Years ended December 31, | |||||||||||
2019 vs 2018 | |||||||||||
Variance due to change in | |||||||||||
Average Volume | Average Rate | Net Increase/ (Decrease) | |||||||||
(Dollars in thousands) | |||||||||||
Interest Income: | |||||||||||
Loans (net of deferred costs/fees) | $ | 12,042 | $ | 3,991 | $ | 16,033 | |||||
Investment securities | (180 | ) | (1 | ) | (181 | ) | |||||
Federal funds sold and cash equivalents | 1,648 | 166 | 1,814 | ||||||||
Total interest income | 13,510 | 4,156 | 17,666 | ||||||||
Interest Expense: | |||||||||||
Deposits | 2,099 | 5,517 | 7,616 | ||||||||
Borrowed funds | 44 | 1,224 | 1,268 | ||||||||
Total interest expense | 2,143 | 6,741 | 8,884 | ||||||||
Net interest income | $ | 11,367 | $ | (2,585 | ) | $ | 8,782 | ||||
Provision for loan losses
Our provision for loan losses in each period is driven by net charge-offs and changes to the allowance for loan losses. We recorded a provision for loan losses of $2.7 million and $1.8 million in 2019 and 2018, respectively. The provision for loan losses as a percentage of interest income was 3.39% and 2.91% in 2019 and 2018, respectively.
Our provision for loan losses increased by $900,000 in 2019 compared to 2018 primarily due to increased loan volumes. For more information about our provision and allowance for loan and lease losses and our loss experience, see “Risk Management and Asset Quality-Allowance for Loan and Lease Losses” and NOTE 4. Loans and Allowance for Loan and Lease Losses in the Consolidated Financial Statements.
Non-interest Income
The table below displays the components of non-interest income for 2019 and 2018.
2019 | 2018 | ||||||
(Dollars in thousands) | |||||||
Gain on sale of SBA loans | $ | 116 | 378 | ||||
Other Loan fees | 982 | 1,121 | |||||
Bank owned life insurance income | 601 | 613 | |||||
Service fees on deposit accounts | 1,921 | 1,482 | |||||
Loss on sale and valuation adjustments of OREO | (246 | ) | (690 | ) | |||
Other | 465 | 503 | |||||
Total non-interest income | $ | 3,839 | $ | 3,407 | |||
Non-interest income increased by $432,000 to $3.8 million in 2019 compared to 2018 primarily due to:
• | An increase in fee income related to the commercial deposit accounts; |
• | A decrease in losses related to the sale and valuation adjustment of other real estate owned (OREO); and |
These increases were partially offset by decease in loan fees and the decrease in gain on sale of the loans. The fee income for the year ended December 31, 2019 from the commercial deposit accounts of depositors who do business in the medical-use cannabis industry totaled $1.6 million and is included in service fees on deposit accounts in the accompanying consolidated statements of income. Such deposit fee income totaled $613,000 during the year ended December 31, 2018. Please refer to
6
Note 15. Commitments and Contingencies in the Notes to the Consolidated Financial Statements for our banking services to customers who do business in the medical-use cannabis industry.
Non-Interest Expense
The following table displays the components of non-interest expense for 2019 and 2018.
2019 | 2018 | ||||||
(Dollars in thousands) | |||||||
Compensation and benefits | $ | 9,188 | $ | 8,251 | |||
Professional services | 1,946 | 1,419 | |||||
Occupancy and equipment | 1,793 | 1,675 | |||||
Data processing | 1,046 | 835 | |||||
FDIC insurance and other assessments | 56 | 420 | |||||
OREO expense | 415 | 611 | |||||
Other operating expense | 3,508 | 3,084 | |||||
Total non-interest expense | $ | 17,952 | $ | 16,295 | |||
Non-interest expense increased $1.7 million to $18.0 million for 2019, from $16.3 million for 2018 primarily due to
• | Increase in compensation and benefits; and |
• | Increase in professional services cost. |
These increases were partially offset by decrease in FDIC insurance assessment fees. The increase in noninterest expense was primarily due to the growth of the business.
Income Tax
Income tax expense increased $1.4 million to $9.8 million on income before taxes of $40.1 million for 2019, compared to income tax expense of $8.4 million on income before taxes of $33.4 million for 2018. The effective income tax rates for 2019 and 2018 were 24.4% and 25.1%, respectively.
Financial Condition
General
At December 31, 2019, the Company’s total assets were $1.68 billion, an increase of $213.8 million or 14.6%, from December 31, 2018. The increase in total assets was primarily attributable to increase in loans and cash and cash equivalents. Total loans outstanding increased $179.4 million, primarily due to the increase in the construction and one-to-four-family residential loan portfolios, which increased $91.2 million and $91.5 million, respectively, to $231.1 million and $636.9 million , respectively, at December 31, 2019 from $139.9 million and $545.4 million at December 31, 2018. Cash and cash equivalents increased $37.1 million from December 31, 2018 to $191.6 million at December 31, 2019.
Total liabilities were $1.50 billion at December 31, 2019. This represented a $189.3 million, or 14.4%, increase from $1.31 billion at December 31, 2018. The increase in total liabilities was primarily due to an increase in total deposits, which increased $155.3 million, or 13.1%, to $1.34 billion at December 31, 2019, from $1.18 billion at December 31, 2018.
Total equity was $179.4 million and $155.0 million at December 31, 2019 and December 31, 2018, respectively, for an increase of $24.4 million from December 31, 2018.
7
The following table presents certain key condensed balance sheet data as of December 31, 2019 and December 31, 2018:
December 31, 2019 | December 31, 2018 | ||||||
(Dollars in thousands) | |||||||
Cash and cash equivalents | $ | 191,607 | $ | 154,471 | |||
Investment securities | 27,780 | 32,391 | |||||
Loans held for sale | 190 | 419 | |||||
Loans, net of unearned income | 1,420,749 | 1,241,157 | |||||
Allowance for loan losses | 21,811 | 19,075 | |||||
Total assets | 1,681,160 | 1,467,398 | |||||
Total deposits | 1,339,219 | 1,183,873 | |||||
FHLBNY borrowings | 134,650 | 104,650 | |||||
Subordinated debt | 13,403 | 13,403 | |||||
Total liabilities | 1,501,736 | 1,312,402 | |||||
Total equity | 179,424 | 154,996 | |||||
Total liabilities and equity | 1,681,160 | 1,467,398 | |||||
Cash and cash equivalents
Cash and cash equivalents increased $37.1 million to $191.6 million at December 31, 2019 from $154.5 million at December 31, 2018, an increase of 24.0%. The increase was primarily due to the cash received from the increase in deposits.
Investment securities
Total investment securities decreased to $27.8 million at December 31, 2019, from $32.4 million at December 31, 2018, a decrease of $4.6 million or 14.2%. The decrease was primarily due to the normal pay downs of mortgage-backed securities. The following table presents a summary of our investment securities portfolio at December 31, 2019, 2018, and 2017.
At December 31, | |||||||||||
2019 | 2018 | 2017 | |||||||||
(Dollars in thousands) | |||||||||||
Securities Held to Maturity at Amortized Cost | |||||||||||
State and political subdivisions | $ | 1,167 | $ | 1,113 | $ | 2,268 | |||||
Securities Available for Sale at Fair Value: | |||||||||||
Corporate debt obligations | $ | 500 | $ | 500 | $ | 1,033 | |||||
Residential mortgage-backed securities | 26,075 | 30,721 | 36,863 | ||||||||
Collateralized mortgage obligations | 38 | 57 | 95 | ||||||||
Total securities available for sale | 26,613 | 31,278 | 37,991 | ||||||||
Total | $ | 27,780 | $ | 32,391 | $ | 40,259 | |||||
The following table sets forth information regarding the scheduled maturities, amortized costs, estimated fair values, and weighted average yields of the Bank’s investment securities portfolio at December 31, 2019, by contractual maturity. The table does not take into consideration the effects of scheduled repayments or the effects of possible prepayments. The yield information does not give effect to changes in fair value that are reflected as a component of stockholders' equity.
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At December 31, 2019 | |||||||||||||||||||||||||||||||
One to Five Years | After Five to Ten Years | More Than Ten Years | Total Investment Securities | ||||||||||||||||||||||||||||
Amortized Cost | Average Yield | Amortized Cost | Average Yield | Amortized Cost | Average Yield | Amortized Cost | Average Yield | Fair Value | |||||||||||||||||||||||
(Amounts in thousands, except yields) | |||||||||||||||||||||||||||||||
Securities Held to Maturity: | |||||||||||||||||||||||||||||||
State and political subdivisions | $ | — | — | % | $ | 1,167 | 4.76 | % | $ | — | — | % | $ | 1,167 | 4.76 | % | $ | 1,430 | |||||||||||||
Securities Available for Sale: | |||||||||||||||||||||||||||||||
Corporate debt obligations | $ | — | — | % | $ | 500 | 4.75 | % | $ | — | — | % | $ | 500 | 4.75 | % | $ | 500 | |||||||||||||
Residential mortgage-backed securities | 156 | — | 11,379 | 2.36 | 14,454 | 2.49 | 25,989 | 2.41 | 26,075 | ||||||||||||||||||||||
Collateralized mortgage obligations | — | — | — | — | 37 | 4.61 | 37 | 4.61 | 38 | ||||||||||||||||||||||
Total securities available for sale | 156 | — | 11,879 | 2.45 | 14,491 | 2.49 | 26,526 | 2.45 | 26,613 | ||||||||||||||||||||||
Total | $ | 156 | — | % | $ | 13,046 | 2.63 | % | $ | 14,491 | 2.49 | % | $ | 27,693 | 2.54 | % | $ | 28,043 | |||||||||||||
For additional information of our investment portfolio, see NOTE 3 - Investment Securities to the Consolidated Financial Statements.
Loans
Our lending relationships are primarily with small to mid-sized businesses and individual consumers residing primarily in and around Southern New Jersey and Philadelphia, Pennsylvania. We focus our lending efforts primarily in three lending areas: residential mortgage loans, commercial mortgage loans, and construction loans.
We originate residential mortgage loans with adjustable and fixed-rates that are secured by1- 4 family and multifamily residential properties. These loans are generally underwritten under terms, conditions and documentation acceptable to the secondary mortgage market. A substantial majority of such loans can be sold in the secondary market or pledged for potential borrowings.
We originate commercial real estate loans that are secured by commercial real estate properties that are owner and non-owner occupied real estate properties. These loans are typically larger in dollar size and are primarily secured by office buildings, retail buildings, warehouses and general purpose business space. The commercial mortgages loans generally have maturities of twenty years, but re-price within five years.
The construction loans we originate provide real estate acquisition, development and construction funds to individuals and real estate developers. The loans are secured by the properties under development. The construction loan funds are disbursed periodically at pre-specified stages of completion.
We also originate commercial and industrial loans, which provide liquidity to businesses in the form of lines of credit and may be secured by accounts receivable, inventory, equipment or other assets. In addition, we have a small consumer loan portfolio providing funds to individual borrowers.
At December 31, 2019, the total loan portfolio increased to $1.42 billion compared to $1.24 billion at December 31, 2018.
Loans held for sale (HFS): Loans held for sale are comprised of SBA loans originated for sale. Loans held for sale totaled $190,000 at December 31, 2019 and $419,000 at December 31, 2018.
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Loans receivable: Loans receivable increased to $1.42 billion at December 31, 2019 from $1.24 billion at December 31, 2018. The increase was largely driven by the growth of the residential 1 - 4 family mortgage and construction loan portfolio. Loans receivable, excluding loans held for sale, as of December 31, 2019, 2018, 2017, 2016, and 2015 consisted of the following:
December 31, 2019 | December 31, 2018 | December 31, 2017 | December 31, 2016 | December 31, 2015 | |||||||||||||||
Amount | Amount | Amount | Amount | Amount | |||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Commercial and Industrial | $ | 36,777 | $ | 34,640 | $ | 38,972 | $ | 26,774 | $ | 27,140 | |||||||||
Construction | 231,095 | 139,877 | 95,625 | 67,294 | 52,995 | ||||||||||||||
Real Estate Mortgage: | |||||||||||||||||||
Commercial – Owner Occupied | 136,753 | 135,617 | 126,250 | 123,898 | 172,040 | ||||||||||||||
Commercial – Non-owner Occupied | 298,204 | 321,580 | 270,472 | 268,123 | 256,471 | ||||||||||||||
Residential – 1 to 4 Family | 636,891 | 545,391 | 416,317 | 309,340 | 213,266 | ||||||||||||||
Residential – Multifamily | 68,258 | 49,628 | 47,832 | 39,804 | 18,113 | ||||||||||||||
Consumer | 12,771 | 14,424 | 16,249 | 16,720 | 18,476 | ||||||||||||||
Total Loans | $ | 1,420,749 | $ | 1,241,157 | $ | 1,011,717 | $ | 851,953 | $ | 758,501 | |||||||||
Amounts presented include adjustments for related unamortized deferred costs and fees.
Maturities and sensitivity of loans to changes in interest rate: The following table sets forth contractual maturities of selected categories of loans and the contractual distribution of loans in those categories to changes in interest rates at December 31, 2019.
Due within one year | Due after one through five years | Due after five years | Total | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Commercial and Industrial | $ | 16,226 | $ | 6,654 | $ | 13,897 | $ | 36,777 | |||||||
Construction | 147,972 | 76,827 | 6,296 | 231,095 | |||||||||||
Commercial Real Estate Mortgage: | |||||||||||||||
Commercial - Owner Occupied | 10,383 | 28,535 | 97,835 | 136,753 | |||||||||||
Commercial - Non-Owner Occupied | 12,471 | 115,880 | 169,853 | 298,204 | |||||||||||
Total | $ | 187,052 | $ | 227,896 | $ | 287,881 | $ | 702,829 | |||||||
Loans at fixed interest rates | $ | 20,811 | $ | 35,258 | $ | 41,525 | $ | 97,594 | |||||||
Loans at floating/variable interest rates | 166,240 | 192,638 | 246,357 | 605,235 | |||||||||||
Total | $ | 187,051 | $ | 227,896 | $ | 287,882 | $ | 702,829 | |||||||
Deposits
We offer individuals and businesses a wide variety of accounts, including checking, savings, money market accounts, individual retirement accounts and certificates of deposit. Deposits are obtained primarily from communities that the Bank serves. At December 31, 2019, the Bank’s total deposits increased to $1.34 billion from $1.18 billion at December 31, 2018, an increase of $155.3 million, or 13.1%. The increase in deposits was primarily related to the increase in time deposits.
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December 31 | |||||||
2019 | 2018 | ||||||
(Dollars in thousands) | |||||||
Noninterest-bearing | $ | 259,269 | $ | 360,329 | |||
Interest-bearing | |||||||
Checking | 55,606 | 52,721 | |||||
Savings | 105,554 | 131,127 | |||||
Money market | 232,115 | 208,335 | |||||
Time deposits | 686,675 | 431,361 | |||||
Total deposits | $ | 1,339,219 | $ | 1,183,873 | |||
The following tables detail the average amount, the average rate paid, and the percentage of each category to total deposits for the most recent three years ended December 31, 2019, 2018, and 2017.
2019 | ||||||||
Average Balance | Yield/Rate | Percent of Total | ||||||
(Dollars in thousands, except percentages) | ||||||||
NOWs | $ | 54,540 | 0.61% | 4.34 | % | |||
Money markets | 214,251 | 2.12% | 17.06 | % | ||||
Savings | 113,354 | 0.52% | 9.03 | % | ||||
Time deposits | 434,569 | 2.34% | 34.60 | % | ||||
Brokered CDs | 116,131 | 2.62% | 9.25 | % | ||||
Total interest-bearing deposits | 932,845 | 2.00% | ||||||
Non-interest bearing demand deposits | 323,146 | 25.72 | % | |||||
Total deposits | $ | 1,255,991 | 100.00 | % | ||||
2018 | ||||||||
Average Balance | Yield/Rate | Percent of Total | ||||||
(Dollars in thousands, except percentages) | ||||||||
NOWs | $ | 52,596 | 0.51% | 5.29 | % | |||
Money markets | 176,359 | 1.64% | 17.75 | % | ||||
Savings | 154,229 | 0.53% | 15.51 | % | ||||
Time deposits | 314,609 | 1.58% | 31.65 | % | ||||
Brokered CDs | 100,244 | 2.11% | 10.08 | % | ||||
Total interest-bearing deposits | 798,037 | 1.39% | ||||||
Non-interest bearing demand deposits | 196,068 | 19.72 | % | |||||
Total deposits | $ | 994,105 | 100.00 | % | ||||
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2017 | ||||||||
Average Balance | Yield/Rate | Percent of Total | ||||||
(Dollars in thousands, except percentages) | ||||||||
NOWs | $ | 42,582 | 0.49% | 5.26 | % | |||
Money markets | 138,084 | 0.78% | 17.06 | % | ||||
Savings | 180,908 | 0.53% | 22.36 | % | ||||
Time deposits | 288,617 | 1.17% | 35.66 | % | ||||
Brokered CDs | 74,357 | 1.16% | 9.19 | % | ||||
Total interest-bearing deposits | 724,548 | 0.89% | ||||||
Non-interest bearing demand deposits | 84,758 | 10.47 | % | |||||
Total deposits | $ | 809,306 | 100.00 | % | ||||
The following table indicates the amount of the Company’s certificates of deposit of $100,000 or more by time remaining until maturity as of December 31, 2019.
Maturity Period | Certificates of Deposit | |||
(Dollars in thousands) | ||||
Within three months | $ | 109,300 | ||
Three through twelve months | 291,027 | |||
Over twelve months | 96,253 | |||
Total | $ | 496,580 | ||
Borrowings
Borrowings consist of subordinated debt and advances from the FHLB and other parties. At December 31, 2019, we had $134.7 million in FHLB advances. The advances are secured by qualifying loans and other qualified assets with the FHLB. FHLB members are required to purchase and hold shares of FHLB capital stock in an amount equal to the sum of a minimum investment, currently 0.125% of mortgage-related assets held by the FHLB member, and activity-based stock investment, currently 4.5% of the outstanding principal balance of advance outstanding. As of December 31, 2019, our FHLB stock investment totaled $7.4 million. At December 31, 2019, we had $13.4 million of trust preferred debentures outstanding. The interest rates on $10.3 million and $3.1 million of the trust preferred debentures were 3.57% and 3.39%, respectively. The interest rates on our subordinate debentures are reset quarterly at base rate plus three-month LIBOR and the debts will mature after 2021. There are uncertainties about what alternative reference rate might replace LIBOR for our subordinate debentures after the expected discontinuation of LIBOR after 2021 and what will be the impact on our financial statements. Currently, the US Alternative Reference Rates Committee (“ARRC”) has identified the Secured Overnight Financing Rate (“SOFR”) as its preferred alternative rate for USD LIBOR. SOFR is a measure of the cost of borrowing cash overnight, collateralized by U.S. Treasury securities, and is based on directly observable U.S. Treasury-backed repurchase transactions. Some market participants are also considering other USD reference rates for certain instruments. The work being performed globally to address reference rate transition risk is ongoing and evolving. We are continuing following the development of alternative reference rates.
At December 31, 2019, total borrowings increased $30.0 million to $148.1 million at December 31, 2019 from $118.1 million at December 31, 2018. The following tables set forth information regarding our FHLB advances:
December 31, | |||||||
2019 | 2018 | ||||||
(Dollars in thousands, except rates) | |||||||
Amount outstanding at year end | $ | 134,650 | $ | 104,650 | |||
Weighted average interest rates at year end | 2.41 | % | 2.67 | % | |||
Maximum outstanding at any month end | $ | 134,650 | $ | 134,650 | |||
Average outstanding for the years | $ | 107,795 | $ | 105,883 | |||
Weighted average interest rate during the year | 2.79 | % | 2.00 | % | |||
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For more information on the Company's borrowings, refer to the Note 7. Borrowings in the Notes to Consolidated Financial Statements.
Equity
Total shareholders’ equity increased to $177.6 million at December 31, 2019 from $153.6 million at December 31, 2018, an increase of $24.0 million or 15.7%. Total equity increased to $179.4 million at December 31, 2019 from $155.0 million at December 31, 2018. The increases in total shareholders' equity and total equity were primarily due to the retention of earnings from the period.
Common and Preferred Stocks
The Company's common stock is listed on the Nasdaq Capital Market under the trading symbol of "PKBK". The number of shareholders of record of common stock as of February 25, 2020, was approximately 256. This does not reflect the number of persons or entities who held stock in nominee or "street" name through various brokerage firms. At February 25, 2020, there were 10,772,057 shares of our common stock outstanding.
The Company paid a quarterly cash dividend each quarter of 2019. The first quarter dividend declared was $0.14 per share and paid in April 2019. The dividend declared was increased to $0.16 per share in the second, third and fourth quarters of 2019. The second and third quarter dividend declared were paid in July and October. The fourth quarter dividend was paid in January, 2020. The Company also paid a cash dividend $1.5 million on the common stock on January 25, 2019 which had been declared in the fourth quarter of 2018. During 2019 the Company paid $6.5 million in common stock cash dividends.
The Company also has 500 shares of 6% non-Cumulative Series B Preferred Stock outstanding at December 31, 2019. The preferred stock has a liquidation preference of $1,000 per share. Each share of Series B Preferred Stock is convertible, at the option of the holder into approximately 125.05 shares of Common Stock at December 31, 2019. Upon full conversion of the outstanding shares of the Series B Preferred Stock, the Company will issue approximately 62,553 shares of the common stock assuming that the conversion rate does not change. The conversion rate and the total number of shares to be issued would be adjusted for future stock dividends, stock splits and other corporate actions.
The Company has recorded dividends on preferred stock in the approximate amount of $24,000 and $446,000 for the years ended December 31, 2019 and 2018, respectively. The Company paid cash dividends of $60 per share on the preferred stock for the years 2019 and 2018. The preferred stock qualifies and is accounted for as equity securities and is included in the Company’s Tier I capital since issued.
The timing and amount of future dividends will be within the discretion of the Board of Directors and will depend on the consolidated earnings, financial condition, liquidity, and capital requirements of the Company and its subsidiaries, applicable governmental regulations and policies, and other factors deemed relevant by the Board.
The Company's ability to pay dividends is substantially dependent upon the dividends it receives from the Bank and is subject to other restrictions. Under current regulations, the Bank's ability to pay dividends is restricted as well.
Under the New Jersey Banking Act of 1948, a bank may declare and pay dividends only if after payment of the dividend the capital stock of the bank will be unimpaired and either the bank will have a surplus of not less than 50% of its capital stock or the payment of the dividend will not reduce the bank's surplus.
Pursuant to the terms of the Series B Preferred Stock, the Company may not pay a cash dividend on the common stock unless all dividends on the Series B Preferred Stock for the then-current dividend period have been paid or set aside.
The Federal Deposit Insurance Act generally prohibits all payments of dividends by any insured bank that is in default of any assessment to the FDIC. Additionally, because the FDIC may prohibit a bank from engaging in unsafe or unsound practices, it is possible that under certain circumstances the FDIC could claim that a dividend payment constitutes an unsafe or unsound practice. The New Jersey Department of Banking and Insurance has similar power to issue cease and desist orders to prohibit what might constitute unsafe or unsound practices. The payment of dividends may also be affected by other factors (e.g., the need to maintain adequate capital or to meet loan loss reserve requirements).
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Risk Management and Asset Quality
In the normal course of business the Company is exposed to a variety of operational, reputational, legal, regulatory, market, liquidity, and credit risks that could adversely affect our financial performance and financial position. Sound risk management enables us to serve our customers and deliver for our shareholders.
Our asset risk is primarily tied to credit risk. We define credit risk as the risk of loss associated with a borrower or counterparty default. Credit risk exists with many of our assets and exposures including loans, deposit overdrafts, and assets held-for-sale. The discussion below focuses on our loan portfolios, which represent the largest component of assets on our balance sheet for which we have credit risk.
We manage our credit risk by establishing what we believe are sound credit policies for underwriting new loans, while monitoring and reviewing the performance of our existing loan portfolios. We employ various credit risk management and monitoring activities to mitigate risks associated with loans we hold or originate. In making credit decisions, we consider loan concentrations and related credit quality, economic and market conditions, regulatory mandates, and changes in interest rates.
A key to our credit risk management is adherence to a well-controlled underwriting process. When we originate a loan, we assess the borrower’s ability to meet the loan’s terms and conditions based on the risk profile of the borrower, repayment sources, the nature of underlying collateral, and other support given current events, conditions and expectations. We actively monitor and review our loan portfolio throughout a borrower’s credit cycle. A borrower’s ability to repay can be adversely affected by economic and personal financial changes as well as other factors. Likewise, changes in market conditions and other external factors can affect collateral valuations. We adjust our financial assessments to reflect changes in the financial condition, cash flow, risk profile or outlook of a borrower.
We have established credit monitoring and tracking systems and closely monitor economic conditions and loan performance trends to manage and evaluate our exposure to credit risk. The system supplements the credit review process by providing management with frequent reports related to loan production, loan quality, concentrations of credit risk, loan delinquencies, TDRs, nonperforming loans and potential problems loans.
The Company also maintains an outsourced independent loan review program that reviews and validates the credit risk assessment program on a periodic basis. Results of these external independent reviews are presented to management. The external independent loan review process complements and reinforces the risk identification and assessment decisions made by lenders and credit risk management personnel.
Although credit policies are designed to minimize risk, management recognizes that loan losses will occur and the amount of these losses will fluctuate depending on the risk characteristics of the loan portfolio as well as general and regional economic conditions.
Allowance for Loan and Lease Losses:
We maintain the allowance for loan and lease losses at levels that we believe to be appropriate to absorb estimated probable credit losses incurred in the portfolios as of the balance sheet date. Refer to the Note 1. Description of Business and Summary of Significant Accounting Policies in the Notes to the Consolidated Financial Statements for further discussion of management's methodology for estimating the allowance for loan losses.
For the year ended December 31, 2019, our loan portfolios continued to show strong credit quality. The loss levels of our loan portfolios remained near historically low levels and reflect our long-term risk focus. At December 31, 2019, the allowance for loan losses was $21.8 million, as compared to $19.1 million at December 31, 2018. The ratio of the allowance for loan losses to total loans was 1.54% at December 31, 2019 and December 31, 2018. The provision for loan losses amounted to $2.7 million for 2019, compared to $1.8 million for 2018. During the year ended December 31, 2019, the Company charged off $56,000 in loans, and recovered $92,000, compared to $223,000 in loans charged off in the year ended December 31, 2018, and $965,000 in recoveries.
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The following table sets forth the Company's allowance for loan losses by loan category at the date indicated and related percentage of the loans in the portfolio.
December 31, 2019 | December 31, 2018 | December 31, 2017 | December 31, 2016 | December 31, 2015 | |||||||||||||||||||||
Amount | % of Loans to total Loans | Amount | % of Loans to total Loans | Amount | % of Loans to total Loans | Amount | % of Loans to total Loans | Amount | % of Loans to total Loans | ||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||
Commercial and Industrial | $ | 964 | 2.6 | % | $ | 718 | 2.8 | % | $ | 684 | 4.0 | % | $ | 1,188 | 3.1 | % | $ | 952 | 3.6 | % | |||||
Construction | 2,807 | 16.3 | 1,694 | 11.3 | 2,068 | 9.4 | 2,764 | 7.9 | 2,748 | 7.0 | |||||||||||||||
Real Estate Mortgage: | |||||||||||||||||||||||||
Commercial – Owner Occupied | 2,023 | 9.6 | 2,062 | 10.9 | 2,017 | 12.5 | 2,082 | 14.5 | 3,267 | 22.7 | |||||||||||||||
Commercial – Non-owner Occupied | 5,860 | 21.0 | 5,853 | 25.9 | 4,630 | 26.7 | 3,889 | 31.5 | 3,838 | 33.8 | |||||||||||||||
Residential – 1 to 4 Family | 9,151 | 44.8 | 7,917 | 43.9 | 6,277 | 41.1 | 4,916 | 36.3 | 4,802 | 28.1 | |||||||||||||||
Residential – Multifamily | 819 | 4.8 | 621 | 4.0 | 627 | 4.7 | 505 | 4.7 | 254 | 2.4 | |||||||||||||||
Consumer | 187 | 0.9 | 210 | 1.2 | 230 | 1.6 | 236 | 2.0 | 275 | 2.4 | |||||||||||||||
Total Loans | $ | 21,811 | 100.0 | % | $ | 19,075 | 100.0 | % | $ | 16,533 | 100.0 | % | $ | 15,580 | 100.0 | % | $ | 16,136 | 100.0 | % | |||||
Impaired loans and Nonperforming Assets:
A loan is considered impaired when, based on the current information and events, it is probable that the Company will be unable to collect the payments of principal and interest as of the date such payments are due. Loans that are 30 days or more past due in terms of principal and interest payments are considered delinquent. Loans are placed on non-accrual status when, in management's opinion, the borrower may be unable to meet payment obligations as they become due, as well as when a loan is 90 days past due, unless the loan is well secured and in the process of collection, as required by regulatory provisions. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Impaired loans include nonperforming loans and TDRs, regardless of nonperforming status. At December 31, 2019, we had $22.1 million of loans deemed impaired compared to $21.9 million at December 31, 2018. Delinquent loans totaled $7.3 million, or 0.52% of total loans at December 31, 2019, an increase of $4.0 million from December 31, 2018. At December 31, 2019, loans 30 to 89 days delinquent totaled $2.0 million, an increase of $1.7 million from December 31, 2018. Loans delinquent 90 days or more and not accruing interest totaled $5.3 million or 0.38% of total loans at December 31, 2019, an increase of $2.3 million from $3.1 million or 0.25% of total loans at December 31, 2018. The two largest nonperforming loan relationships as of December 31, 2019 were a $1.4 million construction loan and an aggregate of $2.7 million loans to one borrower secured by farmland, which was partially guaranteed by a Federal government agency.
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The table below presents an age analysis of past due loans by loan class and the percentage of the nonperforming loans to total loans at December 31, 2019:
December 31, 2019 | 30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 Days and Not Accruing (NPL) | Greater than 90 Days and Accruing | Current | Total Loans | NPL to Loan Type % | |||||||||||||||||||
(Dollars in thousands except ratios) | ||||||||||||||||||||||||||
Commercial and Industrial | $ | — | $ | — | $ | 286 | $ | — | $ | 36,491 | $ | 36,777 | 0.78 | % | ||||||||||||
Construction | — | — | 1,365 | — | 229,730 | 231,095 | 0.59 | % | ||||||||||||||||||
Real Estate Mortgage: | ||||||||||||||||||||||||||
Commercial – Owner Occupied | — | 1,722 | 2,702 | — | 132,329 | 136,753 | 1.98 | % | ||||||||||||||||||
Commercial – Non-owner Occupied | — | — | 70 | — | 298,134 | 298,204 | 0.02 | % | ||||||||||||||||||
Residential – 1 to 4 Family | — | 262 | 925 | — | 635,704 | 636,891 | 0.15 | % | ||||||||||||||||||
Residential – Multifamily | — | — | — | — | 68,258 | 68,258 | — | % | ||||||||||||||||||
Consumer | — | — | — | — | 12,771 | 12,771 | — | % | ||||||||||||||||||
Total Loans | $ | — | $ | 1,984 | $ | 5,348 | $ | — | $ | 1,413,417 | $ | 1,420,749 | 0.38 | % | ||||||||||||
Troubled Debt Restructurings (TDRs)
We reported performing TDR loans (not reported as non-accrual loans) of $16.8 million and $18.8 million, respectively, at December 31, 2019 and December 31, 2018. Non-performing TDRs were $281,000 at December 31, 2019. There were no non performing TDRs at December 31, 2018. There were no new loans modified as a TDR and no additional commitments to lend additional funds to debtors whose loans have been modified in TDRs for the year ended December 31, 2019 and the year ended December 31, 2018, respectively. Refer to the Note 1. Description of Business and Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements for further discussion on management's methodology for TDR policy.
Other Real Estate Owned(OREO)
OREO at December 31, 2019 was $4.7 million, compared to $5.1 million at December 31, 2018, a decrease of $397,000, primarily due to sale of OREO and valuation adjustment, partially offset by the increase in OREO from the loan transfer in. Refer to the Note 5. OREO in the Notes to Consolidated Financial Statements for detailed information regarding OREO.
At December 31, 2019, the Company had $10.1 million in nonperforming assets, which includes $5.3 million of nonperforming loans and $4.7 million of OREO, or 0.60% of total assets, an increase from $8.2 million, or 0.56% of total assets at December 31, 2018. Specific allowances for loan losses on impaired loans have been established in the amount of $1.1 million at December 31, 2019, as compared to $610,000 on impaired loans at December 31, 2018.
Liquidity and Capital Resources
Liquidity is a measure of our ability to generate cash to support asset growth, meet deposit withdrawals, satisfy other contractual obligations, and otherwise operate on an ongoing basis. At December 31, 2019, our cash position was $191.6 million. We invest cash that is in excess of our immediate operating needs primarily in our interest-bearing account at the Federal Reserve.
Our primary source of funding has been deposits. Funds from other operations, financing arrangements, investment securities available-for-sale also provide significant sources of funding. The Company seeks to rely primarily on core deposits from customers to provide stable and cost-effective sources of funding to support loan growth. We focus on customer service which we believe has resulted in a history of customer loyalty. Stability, low cost and customer loyalty comprise key characteristics of core deposits.
We also use brokered deposits as a funding source, which is more volatile than core deposits. The Bank also joined Promontory Inter Financial Network to secure an additional alternative funding source. Promontory provides the Bank an additional source of external funds through their weekly CDARS® settlement process. The rates are comparable to brokered deposits and can be obtained within a shorter period time than brokered deposits. While deposit accounts comprise the vast majority of our funding needs, we maintain secured borrowing lines with the FHLBNY. As of December 31, 2019, the Company had lines of credit with
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the FHLBNY of $380.9 million, of which $134.7 million was outstanding, and an additional $40.0 million was a letter of credit for securing public funds. The remaining borrow capacity was $206.2 million at December 31, 2019.
Our investment portfolio primarily consists of mortgage-backed available for sale securities issued by US government agency and government sponsored entities. These available for sale securities are readily marketable and are available to meet our additional liquidity needs. At December 31, 2019, the Company's investment securities portfolio classified as available for sale was $26.6 million.
We had unused loan commitments of $205.1 million at December 31, 2019. Our loan commitments are normally originated with the full amount of collateral. Such commitments have historically been drawn at only a fraction of the total commitment. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The funding requirements for such commitments occur on a measured basis over time and would be funded by normal deposit growth.
The following is a discussion of our cash flows for the years ended December 31, 2019 and 2018.
Cash flows provided by operating were $34.4 million for the year ended December 31, 2019, compared to $28.9 million for the same period in the prior year. The increase in operating cash flow was primarily due to higher interest income and other cash inflow in the current year, principally reflecting increased income from loans, a decrease in use of cash for the origination of SBA loans for sale, and partially offset by an increase in tax paid during the year and decreased cash proceeds from the sale of SBA loans.
Cash flows used for investing was $176.1 million for the year ended December 31, 2019, compared to $219.9 million in the prior year period. The cash used in the investing activities was primarily due to the $182.3 million cash outflow required for net loan growth during the period. The cash inflows for the investing was principal from the prepayment of MBS securities.
Cash flows provided by financing was $178.8 million for the year ended December 31, 2019, compared to cash from financing $303.3 million in the same period of last year. The decrease in financing cash flow was primarily due to a $162.1 million decrease in cash from deposits activities compared to 2018, and partially offset by additional $30.0 million advances in 2019 from FHLB compared to $10 million repayment of FHLB advances in 2018.
Capital Adequacy
We utilize a comprehensive process for assessing the Company’s overall capital adequacy. We actively review our capital strategies in light of current and anticipated business risks, future growth opportunities, industry standards, and compliance with regulatory requirements. The assessment of overall capital adequacy depends on a variety of factors, including asset quality, liquidity, earnings stability, competitive forces, economic conditions, and strength of management. Our objective is to maintain capital at an amount commensurate with our risk profile and risk tolerance objectives, and to meet both regulatory and market expectations. We primarily manage our capital through the retention of earnings. We also use other meanings to manage our capital. Total equity increased $24.4 million from December 31, 2018, predominantly from the Company’s net income of $29.8 million from the period, net of common and preferred stock dividends of $6.7 million.
Banks and bank holding companies are subject to various regulatory capital requirements administered by federal banking agencies. Under current capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank and the Company must meet specific capital guidelines that involve quantitative measures of their assets, liabilities and certain off-balance sheet items, as calculated under the regulatory accounting practices. The capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. Prompt corrective action provisions are not applicable to bank holding companies. Failure to meet minimum capital requirements can result in regulatory actions.
In November 2019, Federal bank regulatory agencies finalized a rule that simplifies capital requirements for community banks by allowing them to optionally adopt a simple leverage ratio to measure capital adequacy, which removes requirements for calculating and reporting risk-based capital ratios for a qualifying community bank that have less than $10 billion in total consolidated assets, limited amounts of off-balance-sheet exposures and trading assets and liabilities, and a leverage ratio greater than 9 percent. The community bank leverage ratio framework will be effective on January 1, 2020.
Under the current capital rules, the Company and the Bank elected to exclude the effects of certain Accumulated Other Comprehensive Income (“AOCI”) items from its regulatory capital calculation. At December 31, 2019, the Bank and the Company were both considered “well capitalized.”
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The following table presents the regulatory capital and ratios of the Company and the Bank at December 31, 2019:
Amount | Ratio | Amount | Ratio | ||||||||||
(Dollars in thousands except ratios) | |||||||||||||
Company | Parke Bank | ||||||||||||
Total risk-based capital | $ | 208,013 | 16.70 | % | $ | 207,620 | 16.67 | % | |||||
Tier 1 risk-based capital | $ | 192,365 | 15.44 | % | $ | 191,977 | 15.42 | % | |||||
Tier 1 leverage | $ | 192,365 | 11.87 | % | $ | 191,977 | 11.85 | % | |||||
Tier 1 common equity | $ | 177,068 | 14.21 | % | $ | 190,158 | 15.27 | % | |||||
Interest Rate Sensitivity
Interest rate sensitivity is an important factor in the management of the composition and maturity configurations of earning assets and funding sources. The primary objective of asset/liability management is to ensure the steady growth of our primary earnings component, net interest income. Net interest income can fluctuate with significant interest rate movements. To lessen the impact of interest rate movements, management endeavors to structure the balance sheet so that repricing opportunities exist for both assets and liabilities in roughly equivalent amounts at approximately the same time intervals. Imbalances in these repricing opportunities at any point in time constitute interest rate sensitivity.
The measurement of our interest rate sensitivity, or "gap," is one of the principal techniques used in asset/liability management. Interest sensitive gap is the dollar difference between assets and liabilities that are subject to interest-rate pricing within a given time period, including both floating rate or adjustable rate instruments and instruments that are approaching maturity.
Our management and the Board of Directors oversee the asset/liability management function through the asset/liability committee of the Board that meets periodically to monitor and manage the balance sheet, control interest rate exposure, and evaluate our pricing strategies. The asset mix of the balance sheet is continually evaluated in terms of several variables: yield, credit quality, appropriate funding sources and liquidity. Management of the liability mix of the balance sheet focuses on expanding the various funding sources.
In theory, interest rate risk can be diminished by maintaining a nominal level of interest rate sensitivity. In practice, this is made difficult by a number of factors, including cyclical variation in loan demand, different impacts on interest-sensitive assets and liabilities when interest rates change, and the availability of funding sources. Accordingly, we undertake to manage the interest-rate sensitivity gap by adjusting the maturity of and establishing rates on the earning asset portfolio and certain interest-bearing liabilities commensurate with management's expectations relative to market interest rates. Management generally attempts to maintain a balance between rate-sensitive assets and liabilities as the exposure period is lengthened to minimize our overall interest rate risk.
The interest rate sensitivity position as of December 31, 2019, is presented in the following table. Assets and liabilities are scheduled based on maturity or re-pricing data except for mortgage loans and mortgage-backed securities, which are based on prevailing prepayment assumptions and expected maturities and deposits which are based on recent retention experience of core deposits. The difference between rate-sensitive assets and rate-sensitive liabilities, or the interest rate sensitivity gap, is shown at the bottom of the table.
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As of December 31, 2019 | |||||||||||||||||||||||
3 Months or Less | Over 3 Months Through 12 Months | Over 1 Year Through 3 Years | Over 3 Years Through 5 Years | Over 5 Years | Total | ||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||
Interest-earning assets: | |||||||||||||||||||||||
Loans (1) | $ | 183,678 | $ | 254,287 | $ | 421,382 | $ | 230,494 | $ | 325,422 | $ | 1,415,263 | |||||||||||
Investment securities | 1,670 | 3,536 | 7,966 | 6,746 | 7,862 | 27,780 | |||||||||||||||||
Federal funds sold and cash equivalents | 181,525 | — | — | — | — | 181,525 | |||||||||||||||||
Total interest-earning assets | $ | 366,873 | $ | 257,823 | $ | 429,348 | $ | 237,240 | $ | 333,284 | $ | 1,624,568 | |||||||||||
Interest-bearing liabilities: | |||||||||||||||||||||||
NOW, Saving and Money market deposits | $ | 22,700 | $ | 68,100 | $ | 182,375 | $ | 109,819 | $ | 10,282 | $ | 393,276 | |||||||||||
Retail time deposits | 93,180 | 310,376 | 148,928 | 3,548 | 14 | 556,046 | |||||||||||||||||
Brokered time deposits | 56,407 | 74,221 | — | — | — | 130,628 | |||||||||||||||||
Borrowed funds | 21,000 | 91,150 | 22,500 | — | — | 134,650 | |||||||||||||||||
Total interest-bearing liabilities | $ | 193,287 | $ | 543,847 | $ | 353,803 | $ | 113,367 | $ | 10,296 | $ | 1,214,600 | |||||||||||
Interest rate sensitive gap | $ | 173,586 | $ | (286,024 | ) | $ | 75,545 | $ | 123,873 | $ | 322,988 | $ | 409,968 | ||||||||||
Cumulative interest rate gap | $ | 173,586 | $ | (112,438 | ) | $ | (36,893 | ) | $ | 86,980 | $ | 409,968 | $ | — | |||||||||
Ratio of rate-sensitive assets to rate-sensitive liabilities | 189.8 | % | 47.4 | % | 121.4 | % | 209.3 | % | 3,237.0 | % | 133.8 | % | |||||||||||
Cumulative interest sensitivity gap to total assets | 10.3 | % | (6.7 | )% | (2.2 | )% | 5.2 | % | 24.4 | % | — | ||||||||||||
(1) Loan balances exclude nonaccruing loans, deferred fees and costs, and loan discounts.
Off-Balance Sheet Arrangements and Contractual Obligations
In the ordinary course of business, we engage in financial transactions that are not recorded on the balance sheet, or may be recorded on the balance sheet in amounts that are different from the full contract or notional amount of the transaction. Our off-balance sheet arrangements include commitments to extend credit, standby letters of credit and other commitments. These transactions are primarily designed to meet the financial needs of our customers.
We enter into commitments to lend funds to customers, which are usually at a stated interest rate, if funded, and for specific purposes and time periods. When we make commitments, we are exposed to credit risk. However, the maximum credit risk for these commitments will generally be lower than the contractual amount because a significant portion of these commitments is expected to expire without being used by the customer. In addition, we manage the potential risk in commitments to lend by limiting the total amount of commitments, by monitoring maturity structure of these commitments and by applying the same credit standards for these commitments as for all of our credit activities.
For commitments to lend, we generally require collateral or a guarantee. We may require various types of collateral, including accounts receivable, inventory, property, plant and equipment and income-producing commercial properties. Collateral requirements for each loan or commitment may vary based on the commitment type and our assessment of a customer’s credit risk according to the specific credit underwriting, including credit terms and structure.
Commitments to extend credit, or net unfunded loan commitments, represent arrangements to lend funds or provide liquidity subject to specified contractual conditions. These commitments generally have fixed expiration dates, may require payment of a fee, and contain termination clauses in the event the customer’s credit quality deteriorates. At December 31, 2019 and December 31, 2018, unused commitments to extend credit amounted to approximately $205.1 million and $150.6 million, respectively. Commitments to fund fixed-rate loans were immaterial at December 31, 2019. Variable-rate commitments are generally issued for less than one year and carry market rates of interest. Such instruments are not likely to be affected by annual rate caps triggered by rising interest rates. Management believes that off-balance sheet risk is not material to the results of operations or financial condition of the Company.
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Standby letters of credit are conditional commitments issued by the Bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. At the December 31, 2019 and December 31, 2018, standby letters of credit with customers were $20.8 million and $19.3 million, respectively.
Contractual Obligations
At December 31, 2019, we had contractual obligations primarily relating to commitments to extent credits, deposits, secured and unsecured borrowings, and operating leases. We have adequate resources to fund all unfunded commitments to the extent required and meet all contractual obligations as they come due. Please refer to Notes 6,7, 9, and 15 of the Notes to the Consolidated Financial Statements for detailed information regarding our contractual obligations.
Impact of Inflation and Changing Prices
The consolidated financial statements and notes have been prepared in accordance with accounting principles generally accepted within the United States ("GAAP"), which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike most industrial companies, nearly all of our assets are monetary in nature. As a result, market interest rates have a greater impact on our performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services.
Critical Accounting Policies
The Company’s accounting policies are more fully described in Note 1 - Description of Business and Summary of Significant Accounting Policies in the Consolidated Financial Statements. As disclosed in Note 1, the preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ significantly from those estimates. The Company believes that the following discussion addresses the Company’s most critical accounting policies, which are those that are most important to the portrayal of the Company’s financial condition and results of operations and require management’s most difficult, subjective and complex judgments.
Allowance for Loan and Lease Losses: Our allowances for loan and lease losses represents the management's best estimate of probable losses inherent in our loan portfolio excluding those loans accounted for under fair value. Our process for determining the allowance for loan and lease losses is discussed in Note 1 to the Consolidated Financial Statements.
We maintain the ALLL at levels that we believe to be appropriate to absorb estimated probable credit losses incurred in the loan and lease portfolios as of the balance sheet date. Our determination of the allowances is based on periodic evaluations of the loan and lease portfolios and other relevant factors. These critical estimates include significant use of our own historical data and other qualitative, quantitative data. These evaluations are inherently subjective, as they require material estimates and may be susceptible to significant change. Our allowance for loan and lease losses is comprised of two components. The specific allowance covers impaired loans and is calculated on an individual loan basis. The general based component covers loans and leases on which there are incurred losses that are not yet individually identifiable. The allowance calculation and determination process is dependent on the use of key assumptions. Key reserve assumptions and estimation processes react to and are influenced by observed changes in loan portfolio performance experience, the financial strength of the borrower, projected industry outlook, and economic conditions.
The process of determining the level of the allowance for loan and lease losses requires a high degree of judgment. To the extent actual outcomes differ from our estimates, additional provision for loan and lease losses may be required that would reduce future earnings.
Fair Value Estimates: The ASC 820 - Fair Value Measurements defines fair value as a market-based measurement and is the price that would be received to sell a financial asset or paid to transfer a financial liability in an orderly transaction between market participants at the measurement date. We classify fair value measurements of financial instruments based on the three-level fair value hierarchy in the accounting standards. We are required to maximize the use of observable inputs and minimize the use of unobservable inputs in measuring fair value. The fair values of assets may include using estimates, assumptions, and judgments. Valuations of assets or liabilities using techniques non quoted market price are sensitive to assumptions used for the significant inputs. Assets and liabilities carried at fair value inherently result in a higher degree of financial statement volatility. Changes in
20
underlying factors, assumptions, or estimates used for estimating fair values could materially impact our future financial condition and results of operations.
The majority of our assets recorded at fair value are our securities available for sale investment. The fair value of our available for sale securities are provided by independent third-party valuation services. We also have small SBA loans recorded at fair value, which represents the face value of the guaranteed portion of the SBA loans pending settlement. Other real estate owned (OREO) is recorded at fair value on a non-recurring basis and is based on the values of independent third-party full appraisals, less costs to sell (a range of 5% to 10%). Appraisals are updated every 12 months or sooner if we have identified possible further deterioration in value. Refer to Note 16 - Fair Value in the Notes to the Consolidated Financial Statements for further information.
Income Taxes: In the normal course of business, we and our subsidiaries enter into transactions for which the tax treatment is unclear or subject to varying interpretations. We evaluate and assess the relative risks and merits of the tax treatment of transactions, filing positions, filing methods and taxable income calculations after considering statutes, regulations, and other information, and maintain tax accruals consistent with our evaluation of these relative risks and merits. The result of our evaluation and assessment is by its nature an estimate.
When tax returns are filed, it is highly likely that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that ultimately would be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
Current Expected Credit Losses: In June 2016, the Financial Accounting Standards Board adopted a new accounting standard, Financial Instruments - Credit Losses, referred to as Current Expected Credit Loss, or CECL, requires financial institutions to make periodic estimates of lifetime expected credit losses on financial instruments measured at amortized cost and recognize the expected credit losses as allowances. This would likely require us to increase our allowance for loan losses, and to greatly increase the types of data we would need to collect and review to determine the appropriate level of the allowance for loan and debt securities. For public business entities except smaller reporting entities (SRCs), the guidance is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. The CECL will be effective for SEC filers which are SRCs and all other non public entities for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years. For all entities, early adoption will continue to be allowed. As a small reporting company, the CECL is not effective for us until after December 15, 2022.
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Quarterly Financial Data (unaudited)
The following represents summarized unaudited quarterly financial data of the Company which, in the opinion of management, reflects adjustments (comprised only of normal recurring accruals) necessary for fair presentation.
Three Months Ended | |||||||||||||||
December 31, | September 30, | June 30, | March 31, | ||||||||||||
(Dollars in thousands, except per share amounts) | |||||||||||||||
2019 | |||||||||||||||
Interest income | $ | 20,941 | $ | 20,418 | $ | 19,824 | $ | 18,357 | |||||||
Interest expense | 6,270 | 5,927 | 5,533 | 4,925 | |||||||||||
Net interest income | 14,671 | 14,491 | 14,291 | 13,432 | |||||||||||
Provision for loan losses | 650 | 900 | 450 | 700 | |||||||||||
Income before income tax expense | 10,075 | 10,416 | 10,090 | 9,491 | |||||||||||
Income tax expense | 2,437 | 2,551 | 2,481 | 2,316 | |||||||||||
Net income | 7,548 | 7,764 | 7,468 | 7,062 | |||||||||||
Preferred stock dividends | 8 | 8 | 8 | 1 | |||||||||||
Net income available to common shareholders | 7,540 | 7,756 | 7,460 | 7,061 | |||||||||||
Net income per common share: | |||||||||||||||
Basic | $ | 0.64 | $ | 0.65 | $ | 0.63 | $ | 0.60 | |||||||
Diluted | $ | 0.63 | $ | 0.64 | $ | 0.62 | $ | 0.59 | |||||||
Three Months Ended | |||||||||||||||
December 31, | September 30, | June 30, | March 31, | ||||||||||||
(Dollars in thousands, except per share amounts) | |||||||||||||||
2018 | |||||||||||||||
Interest income | $ | 17,469 | $ | 16,015 | $ | 14,883 | $ | 13,508 | |||||||
Interest expense | 4,265 | 3,737 | 3,285 | 2,484 | |||||||||||
Net interest income | 13,204 | 12,278 | 11,598 | 11,024 | |||||||||||
Provision for loan losses | 600 | 600 | 200 | 400 | |||||||||||
Income before income tax expense | 8,937 | 8,833 | 8,050 | 7,595 | |||||||||||
Income tax expense | 2,004 | 2,615 | 1,923 | 1,835 | |||||||||||
Net income | 6,827 | 6,126 | 6,111 | 5,760 | |||||||||||
Preferred stock dividends | 17 | 22 | 168 | 239 | |||||||||||
Net income available to common shareholders | 6,810 | 6,104 | 5,943 | 5,521 | |||||||||||
Net income per common share: | |||||||||||||||
Basic | $ | 0.59 | $ | 0.55 | $ | 0.60 | $ | 0.56 | |||||||
Diluted | $ | 0.57 | $ | 0.51 | $ | 0.51 | $ | 0.48 | |||||||
* Per share information has been retroactively adjusted for the stock dividend declared in January 2020.
22
Parke Bancorp, Inc. and Subsidiaries
Consolidated Financial Report
December 31, 2019
Parke Bancorp, Inc. and Subsidiaries
Contents | |
Page | |
Management's Report on Internal Control Over Financial Reporting........................................................ | |
Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting | |
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements.... | |
Financial Statements | |
Consolidated Balance Sheets.............................................................................................................. | |
Consolidated Statements of Income.................................................................................................... | |
Consolidated Statements of Comprehensive Income.......................................................................... | |
Consolidated Statements of Equity..................................................................................................... | |
Consolidated Statements of Cash Flows............................................................................................. | |
Notes to Consolidated Financial Statements....................................................................................... | |
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a- 15(f). The Company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorization of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements prepared for external purposes in accordance with generally accepted accounting principles. Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.
Under supervision and with the participation of management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. Based on our evaluation under the framework in Internal Control - Integrated Framework, management concluded that our internal control over financial reporting was effective as of December 31, 2019.
RSM US LLP, an independent registered public accounting firm that audited the 2019 consolidated financial statements of the Company has audited the effectiveness of the Company's internal control over financial reporting as of December 31, 2019. Their report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2019 is included on page 2 herein under the heading “Report of Independent Registered Public Accounting Firm.”
March 13, 2020
 |  |
Vito S. Pantilione | John F. Hawkins |
President and Chief Executive Officer | Senior Vice President and Chief Financial Officer |
1
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Parke Bancorp, Inc. and Subsidiaries
Opinion on the Internal Control Over Financial Reporting
We have audited Parke Bancorp, Inc. and Subsidiaries (the Company) internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets as of December 31, 2019 and 2018, the consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the two years in the period ended December 31, 2019, and the related notes to the consolidated financial statements of the Company and our report dated March 13, 2020 expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ RSM US LLP
Blue Bell, Pennsylvania
March 13, 2020
2
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of Parke Bancorp, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Parke Bancorp, Inc. and its subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of income, comprehensive income, shareholders' equity and cash flows for each of the two years in the period ended December 31, 2019, and the related notes to the consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 13, 2020 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ RSM US LLP
We have served as the Company's auditor since 2000.
Blue Bell, Pennsylvania
March 13, 2020
3
Parke Bancorp, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2019 and 2018
(Dollars in thousands except share and per share data)
December 31, | December 31, | |||||||
2019 | 2018 | |||||||
Assets | ||||||||
Cash and due from banks | $ | 10,082 | $ | 5,915 | ||||
Interest bearing deposits with banks | 181,525 | 148,556 | ||||||
Cash and cash equivalents | 191,607 | 154,471 | ||||||
Investment securities available for sale, at fair value | 26,613 | 31,278 | ||||||
Investment securities held to maturity (fair value of $1,430 at December 31, 2019 and $1,292 at December 31, 2018) | 1,167 | 1,113 | ||||||
Total investment securities | 27,780 | 32,391 | ||||||
Loans held for sale | 190 | 419 | ||||||
Loans, net of unearned income | 1,420,749 | 1,241,157 | ||||||
Less: Allowance for loan losses | (21,811 | ) | (19,075 | ) | ||||
Net loans | 1,398,938 | 1,222,082 | ||||||
Accrued interest receivable | 6,069 | 5,191 | ||||||
Premises and equipment, net | 6,946 | 6,783 | ||||||
Restricted stock | 7,440 | 5,858 | ||||||
Bank owned life insurance (BOLI) | 26,410 | 25,809 | ||||||
Deferred tax asset | 6,285 | 6,511 | ||||||
Other | 9,495 | 7,883 | ||||||
Total Assets | $ | 1,681,160 | $ | 1,467,398 | ||||
Liabilities and Equity | ||||||||
Liabilities | ||||||||
Deposits | ||||||||
Noninterest-bearing deposits | $ | 259,269 | $ | 360,329 | ||||
Interest-bearing deposits | 1,079,950 | 823,544 | ||||||
Total deposits | 1,339,219 | 1,183,873 | ||||||
FHLBNY borrowings | 134,650 | 104,650 | ||||||
Subordinated debentures | 13,403 | 13,403 | ||||||
Accrued interest payable | 2,260 | 1,390 | ||||||
Other | 12,204 | 9,086 | ||||||
Total liabilities | 1,501,736 | 1,312,402 | ||||||
Equity | ||||||||
Preferred stock,1,000,000 shares authorized, $1,000 liquidation value Series B non-cumulative convertible; 500 shares and 1,224 shares outstanding at December 31, 2019 and 2018, respectively | 500 | 1,224 | ||||||
Common stock, $.10 par value; authorized 15,000,000 shares; Issued: 12,132,855 shares and 10,953,081 shares at December 31, 2019 and 2018, respectively | 1,213 | 1,095 | ||||||
Additional paid-in capital | 134,706 | 112,807 | ||||||
Retained earnings | 44,143 | 42,079 | ||||||
Accumulated other comprehensive loss | 58 | (633 | ) | |||||
Treasury stock, 284,522 shares at December 31, 2019 and 2018, at cost | (3,015 | ) | (3,015 | ) | ||||
Total shareholders’ equity | 177,605 | 153,557 | ||||||
Noncontrolling interest in consolidated subsidiaries | 1,819 | 1,439 | ||||||
Total equity | 179,424 | 154,996 | ||||||
Total liabilities and equity | $ | 1,681,160 | $ | 1,467,398 | ||||
Common stock issued at December 31, 2019 was retroactively adjusted for the stock dividend declared in January 2020.
See accompanying notes to consolidated financial statements.
4
Parke Bancorp, Inc. and Subsidiaries
Consolidated Statements of Income
Years Ended December 31, 2019 and 2018
(Dollars in thousands except share and per share data)
2019 | 2018 | |||||||
Interest income: | ||||||||
Interest and fees on loans | $ | 75,172 | $ | 59,139 | ||||
Interest and dividends on investments | 1,161 | 1,342 | ||||||
Interest on federal funds sold and deposits with banks | 3,207 | 1,393 | ||||||
Total interest income | 79,540 | 61,874 | ||||||
Interest expense: | ||||||||
Interest on deposits | 18,687 | 11,071 | ||||||
Interest on borrowings | 3,968 | 2,700 | ||||||
Total interest expense | 22,655 | 13,771 | ||||||
Net interest income | 56,885 | 48,103 | ||||||
Provision for loan losses | 2,700 | 1,800 | ||||||
Net interest income after provision for loan losses | 54,185 | 46,303 | ||||||
Non-interest income | ||||||||
Gain on sale of SBA loans | 116 | 378 | ||||||
Other loan fees | 982 | 1,121 | ||||||
Bank owned life insurance income | 601 | 613 | ||||||
Service fees on deposit accounts | 1,921 | 1,482 | ||||||
Net loss on sale and valuation adjustments of OREO | (246 | ) | (690 | ) | ||||
Other | 465 | 503 | ||||||
Total non-interest income | 3,839 | 3,407 | ||||||
Non-interest expense | ||||||||
Compensation and benefits | 9,188 | 8,251 | ||||||
Professional services | 1,946 | 1,419 | ||||||
Occupancy and equipment | 1,793 | 1,675 | ||||||
Data processing | 1,046 | 835 | ||||||
FDIC insurance and other assessments | 56 | 420 | ||||||
OREO expense | 415 | 611 | ||||||
Other operating expense | 3,508 | 3,084 | ||||||
Total non-interest expense | 17,952 | 16,295 | ||||||
Income before income tax expense | 40,072 | 33,415 | ||||||
Income tax expense | 9,785 | 8,377 | ||||||
Net income attributable to Company and noncontrolling interest | 30,287 | 25,038 | ||||||
Less: Net income attributable to noncontrolling interest | (446 | ) | (214 | ) | ||||
Net income attributable to Company | 29,841 | 24,824 | ||||||
Less: Preferred stock dividend | (24 | ) | (446 | ) | ||||
Net income available to common shareholders | $ | 29,817 | $ | 24,378 | ||||
Earnings per common share | ||||||||
Basic | $ | 2.52 | $ | 2.30 | ||||
Diluted | $ | 2.48 | $ | 2.07 | ||||
Weighted average common shares outstanding | ||||||||
Basic | 11,838,096 | 10,592,414 | ||||||
Diluted | 12,011,082 | 12,002,479 | ||||||
All share and per share information has been retroactively adjusted for the stock dividend declared in January 2020.
See accompanying notes to consolidated financial statements
5
Parke Bancorp, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
Years Ended December 31, 2019 and 2018
For the Year ended December 31, | ||||||||
2019 | 2018 | |||||||
(Dollars in thousands) | ||||||||
Net income | $ | 30,287 | $ | 25,038 | ||||
Unrealized gains on investment securities, net of reclassification into income: | ||||||||
Unrealized (losses) gains on non-OTTI securities | 918 | (624 | ) | |||||
Tax impact on unrealized gain (loss) | (227 | ) | 148 | |||||
Reclassification of prior tax effects | — | (27 | ) | |||||
Total unrealized (losses) gains on investment securities | 691 | (503 | ) | |||||
Comprehensive income | 30,978 | 24,535 | ||||||
Less: Comprehensive income attributable to noncontrolling interests | (446 | ) | (214 | ) | ||||
Comprehensive income attributable to the Company | $ | 30,532 | $ | 24,321 | ||||
See accompanying notes to consolidated financial statements
6
Parke Bancorp, Inc. and Subsidiaries | ||||||||||||||||||||||||||||||||||||||
Consolidated Statements of Equity | ||||||||||||||||||||||||||||||||||||||
Years Ended December 31, 2019, and 2018 | ||||||||||||||||||||||||||||||||||||||
(Dollars in thousands except share data) | ||||||||||||||||||||||||||||||||||||||
Preferred Stock | Shares of Common Stock issued | Common Stock | Additional Paid-In Capital | Retained Earnings | Accumulated Other Comprehensive Income (Loss) | Treasury Stock | Total Shareholders’ Equity | Non-Controlling Interest | Total Equity | |||||||||||||||||||||||||||||
Balance, December 31, 2017 | $ | 15,971 | 8,301,497 | $ | 830 | $ | 81,940 | $ | 39,184 | $ | (130 | ) | $ | (3,015 | ) | $ | 134,780 | $ | — | $ | 134,780 | |||||||||||||||||
Retained earnings adjustment for prior tax effects | — | — | — | — | 27 | — | — | 27 | — | 27 | ||||||||||||||||||||||||||||
Capital activity by minority (non-controlling) interest | — | — | — | — | — | — | — | — | 1,225 | 1,225 | ||||||||||||||||||||||||||||
Net income | — | — | — | — | 24,824 | — | — | 24,824 | 214 | 25,038 | ||||||||||||||||||||||||||||
Common stock options exercised | — | 5,539 | 1 | 42 | — | — | — | 43 | — | 43 | ||||||||||||||||||||||||||||
Preferred stock shares conversion | (14,747 | ) | 1,843,761 | 184 | 14,563 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other comprehensive loss | — | — | — | — | — | (503 | ) | — | (503 | ) | — | (503 | ) | |||||||||||||||||||||||||
Stock compensation expense | — | — | — | 109 | — | — | — | 109 | — | 109 | ||||||||||||||||||||||||||||
Stock dividend | — | 802,284 | 80 | 16,153 | (16,237 | ) | — | — | (4 | ) | — | (4 | ) | |||||||||||||||||||||||||
Dividend on preferred stock | — | — | — | — | (446 | ) | — | — | (446 | ) | — | (446 | ) | |||||||||||||||||||||||||
Dividend on common stock | — | — | — | — | (5,273 | ) | — | — | (5,273 | ) | — | (5,273 | ) | |||||||||||||||||||||||||
Balance, December 31, 2018 | $ | 1,224 | 10,953,081 | $ | 1,095 | $ | 112,807 | $ | 42,079 | $ | (633 | ) | $ | (3,015 | ) | $ | 153,557 | $ | 1,439 | $ | 154,996 | |||||||||||||||||
Earnings distribution to non-controlling interest | — | — | — | — | — | — | — | — | (66 | ) | (66 | ) | ||||||||||||||||||||||||||
Net income | — | — | — | — | 29,841 | — | — | 29,841 | 446 | 30,287 | ||||||||||||||||||||||||||||
Common stock options exercised | — | 12,121 | 1 | 47 | — | — | — | 48 | — | 48 | ||||||||||||||||||||||||||||
Preferred stock shares conversion | (724 | ) | 90,532 | 9 | 715 | — | — | — | — | — | — | |||||||||||||||||||||||||||
Other comprehensive income | — | — | — | — | — | 691 | — | 691 | — | 691 | ||||||||||||||||||||||||||||
Stock compensation expense | — | — | — | 176 | — | — | — | 176 | — | 176 | ||||||||||||||||||||||||||||
Stock dividend | — | 1,077,121 | 108 | 20,961 | (21,069 | ) | — | — | — | — | — | |||||||||||||||||||||||||||
Dividend on preferred stock | — | — | — | — | (24 | ) | — | — | (24 | ) | — | (24 | ) | |||||||||||||||||||||||||
Dividend on common stock | — | — | — | — | (6,684 | ) | — | — | (6,684 | ) | — | (6,684 | ) | |||||||||||||||||||||||||
Balance, December 31, 2019 | $ | 500 | 12,132,855 | $ | 1,213 | $ | 134,706 | $ | 44,143 | $ | 58 | $ | (3,015 | ) | $ | 177,605 | $ | 1,819 | $ | 179,424 | ||||||||||||||||||
* Stock dividend declared in January 2020 was retroactively reflected at the balance of common stock issued for December 31, 2019 and related common stock, paid in capital and retained earnings.
See accompanying notes to consolidated financial statements
7
Parke Bancorp, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
Years Ended December 31, 2019 and 2018
(Dollars in thousands)
2019 | 2018 | |||||||
Cash Flows from Operating Activities | ||||||||
Net income | $ | 30,287 | $ | 25,038 | ||||
Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
Depreciation and amortization | 431 | 380 | ||||||
Provision for loan losses | 2,700 | 1,800 | ||||||
Increase in value of bank-owned life insurance | (601 | ) | (613 | ) | ||||
Gain on sale of SBA loans | (116 | ) | (378 | ) | ||||
SBA loans originated for sale | (940 | ) | (4,696 | ) | ||||
Proceeds from sale of SBA loans originated for sale | 1,285 | 6,196 | ||||||
Net loss on sale of OREO and valuation adjustments | 246 | 690 | ||||||
Net accretion of purchase premiums and discounts on securities | 38 | 45 | ||||||
Stock based compensation | 176 | 109 | ||||||
Deferred income tax | (163 | ) | 58 | |||||
Net changes in: | ||||||||
Increase in accrued interest receivable and other assets | (181 | ) | (1,657 | ) | ||||
Increase in accrued interest payable and other accrued liabilities | 1,226 | 1,929 | ||||||
Other | 45 | — | ||||||
Net cash provided by operating activities | 34,433 | 28,901 | ||||||
Cash Flows from Investing Activities | ||||||||
Repayments and maturities of investment securities available for sale | 5,491 | 5,995 | ||||||
Repayments and maturities of investment securities held to maturity | — | 1,204 | ||||||
Net increase in loans | (182,307 | ) | (230,320 | ) | ||||
Purchases of bank premises and equipment | (594 | ) | (138 | ) | ||||
Proceeds from sale of OREO, net | 2,857 | 3,056 | ||||||
Redemptions (purchases) of restricted stock | (1,582 | ) | 314 | |||||
Net cash used in investing activities | (176,135 | ) | (219,889 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Cash dividends | (6,490 | ) | (5,412 | ) | ||||
Proceeds from exercise of stock options | 48 | 43 | ||||||
Capital contribution (earnings distributions) from non-controlling interest | (66 | ) | 1,225 | |||||
Net (decrease) increase in FHLBNY and short-term borrowings | 30,000 | (10,000 | ) | |||||
Net (decrease) increase in noninterest-bearing deposits | (101,060 | ) | 235,973 | |||||
Net increase in interest-bearing deposits | 256,406 | 81,517 | ||||||
Net cash provided by financing activities | 178,838 | 303,346 | ||||||
Increase in cash and cash equivalents | 37,136 | 112,358 | ||||||
Cash and Cash Equivalents, January 1, | 154,471 | 42,113 | ||||||
Cash and Cash Equivalents, December 31, | $ | 191,607 | $ | 154,471 | ||||
Supplemental Disclosure of Cash Flow Information: | ||||||||
Interest paid | $ | 21,785 | $ | 13,100 | ||||
Income taxes paid | $ | 9,900 | $ | 8,654 | ||||
Non-cash Investing and Financing Items | ||||||||
Loans transferred to OREO | $ | 2,751 | $ | 1,622 | ||||
Establishment of lease liability and right-of-use asset | $ | 2,785 | $ | — | ||||
See accompanying notes to consolidated financial statements
8
PARKE BANCORP, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
Note 1. Description of Business and Summary of Significant Accounting Policies
Business:
Parke Bancorp, Inc. (the “Company, we, us, our”) is a bank holding company headquartered in Sewell, New Jersey. Through subsidiaries, the Company provides individuals, corporations and other businesses, and institutions with commercial and retail banking services, principally loans and deposits. The Company was incorporated in January 2005 under the laws of the State of New Jersey for the sole purpose of becoming the holding company of Parke Bank (the "Bank").
The Bank is a commercial bank, which was incorporated on August 25, 1998, and commenced operations on January 28, 1999. The Bank is chartered by the New Jersey Department of Banking and Insurance and its deposits are insured by the Federal Deposit Insurance Corporation. The Bank maintains its principal office at 601 Delsea Drive, Sewell, New Jersey, and seven additional branch office locations; 501 Tilton Road, Northfield, New Jersey, 567 Egg Harbor Road, Washington Township, New Jersey, 67 East Jimmie Leeds Road, Galloway Township, New Jersey, 1150 Haddon Avenue, Collingswood, New Jersey, 1610 Spruce Street, Philadelphia, Pennsylvania, and 1032 Arch Street, Philadelphia, Pennsylvania.
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”). We have reclassified certain prior year amounts to conform to the 2019 presentation, which did not have a material impact on our consolidated financial condition or results of operations. The accounting policies that materially affect the determination of financial position, results of operations and cash flows are summarized below.
Principles of Consolidation: The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary, Parke Bank. Also included are the accounts of Parke Direct Lending LLC ("PDL"), a joint venture formed in 2018 to originate short-term alternative real estate loan products. Parke Bank has a 51% ownership interest in the joint venture. Parke Capital Trust I, Parke Capital Trust II and Parke Capital Trust III are wholly-owned subsidiaries but are not consolidated because they do not meet the requirements for consolidation under applicable accounting guidance. All material inter-company balances and transactions have been eliminated.
Cash and cash equivalents: Consists of cash and due from banks, and interest-bearing deposits and other-short term investments, all of which, if applicable, have stated maturities of three months or less when acquired.
Investment Securities: Debt securities are recorded on a trade-date basis. We classify debt securities as held to maturity if we have the positive intent and ability to hold the securities to maturity. We report securities held to maturity on our consolidated balance sheets at carrying value, which generally equals amortized cost. Amortized cost reflects historical cost adjusted for amortization of premiums, accretion of discounts and any previously recorded impairments. Debt securities not classified as held to maturity or trading are designated as securities available for sale ("AFS") and carried at fair value with unrealized gains and losses, net of income taxes, reflected in accumulated other comprehensive income (loss). We did not have any securities classified as trading securities during 2019 or 2018.
Interest on debt securities, including amortization of premiums and accretion of discounts, is included in interest income. Premiums and discounts are amortized or accreted to interest income at a constant effective yield over the contractual lives of the securities. Realized gains and losses from the sales of debt securities are determined on a specific security basis. These securities gains/(losses) are included in other noninterest income.
On at least a quarterly basis, we review all debt securities that are in an unrealized loss position for OTTI. An investment security is deemed impaired if the fair value of the investment is less than its amortized cost. If the present value of the cash flows expected to be collected, discounted at the security’s effective yield, is less than the security’s amortized cost, OTTI is considered to have occurred. For a debt security for which there has been a decline in the fair value below the amortized cost basis, if we intend to sell the security, or if it is more likely than not we will be required to sell the security before recovery of the amortized cost basis, an OTTI write-down is recognized in earnings equal to the entire difference between the amortized cost basis and fair value of the security. For debt securities that are considered OTTI and that we do not intend to sell and will not be required to sell prior to recovery of our amortized cost basis, we separate the amount of the impairment into the amount that is credit related (credit loss component) and the amount due to all other factors. The credit loss component is recognized in earnings and is the difference between the security’s amortized cost basis and the present value of its expected future cash flows discounted at the security’s
9
effective yield. The remaining difference between the security’s fair value and the present value of expected future cash flows is due to factors that are not credit-related and, therefore, is recognized in other comprehensive income.
Restricted Stock: Restricted stock includes investments in the common stock of the Federal Home Loan Bank of New York (“FHLBNY”) and the Atlantic Central Bankers Bank for which no readily available market exists and, accordingly, is carried at cost. The stocks have no quoted market value and are subject to redemption restrictions. Management reviews these stocks for impairment based on the ultimate recoverability of the cost basis in the stock. The stocks’ values are determined by the ultimate recoverability of the par value rather than by recognizing temporary declines. Management considers such criteria as the significance of the decline in net assets, if any, the length of time this situation has persisted and the financial performance of the issuers. In addition, management considers any commitments by the FHLBNY to make payments required by law or regulation, the impact of legislative and regulatory changes on the customer base of the FHLBNY and the liquidity position of the FHLBNY.
Loans: We classify loans as held for investment or held for sale based on our investment strategy and management’s intent and ability with regard to the loans which may change over time. The accounting and measurement framework for loans differs depending on the loan classification. Loans that we have the ability and intent to hold for the foreseeable future or until maturity or pay-off are classified as held for investment. Loans classified as held for investment are reported at their amortized cost, which is the outstanding principal balance, adjusted for any unearned income, unamortized deferred fees and costs, unamortized premiums and discounts and charge-offs. Interest income on the loans is recognized as earned based on contractual interest rates applied to daily principal amounts outstanding. Loan origination fees, direct loan origination costs, and loan premiums and discounts are deferred and accreted or amortized into net interest income using the constant effective yield method, over the contractual life of the loan.
Loans originated with the intent to sell or for which we do not have the ability and intent to hold for the foreseeable future are classified as held for sale. Interest on these loans is recognized on an accrual basis. These loans are recorded at the lower of cost or fair value. Our SBA loans that management has the intention to sell them are designated as held for sale and are reported at fair value. Fair value represents the face value of the guaranteed portion of SBA loans pending settlement. Loan origination fees and direct loan origination costs are deferred until the loan is sold and are then recognized as part of the total gain or loss on sale. We calculate the gross gain or loss on loan sales as the difference between the proceeds received and the carrying value of the loans sold.
Loan Fees: Loan fees and direct costs associated with loan originations are netted and deferred. The deferred amount is recognized as an adjustment to loan interest over the term of the related loans using the interest method. Loan brokerage fees represent commissions earned for facilitating loans between borrowers and other companies and is recorded as loan fee income. Loan fee income also includes prepayment penalties on loans.
Non-accrual Loans: Loans are placed on non-accrual status when, in management's opinion, the borrower may be unable to meet contractual payment obligations as they become due, as well as when a loan is 90 days past due, unless the loan is well secured and in the process of collection, as required by regulatory provisions. Loans may be placed on non-accrual status regardless of whether or not such loans are considered past due. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due.
Troubled Debt Restructurings: Troubled debt restructurings (“TDRs”) are loans for which the Company, for legal or economic reasons related to a debtor’s financial difficulties, has granted a concession to the debtor that it otherwise would not have considered. Concessions that result in the categorization of a loan as a TDR include but are not limited to:
• | Reduction (absolute or contingent) of the stated interest rate; |
• | Extension of the maturity date or dates at a stated interest rate lower than the current market rate for new debt with similar risk; |
• | Reduction (absolute or contingent) of the face amount or maturity amount of the debt as stated in the instrument or other agreement; or |
• | Reduction (absolute or contingent) of accrued interest. |
TDRs are reported as impaired loans. Interest income on TDR loans is recognized consistent with the Company’s non-accrual loan policy stated above.
Allowance for Loan and Lease Losses: The allowance for loan and lease losses represents management’s estimate of probable losses inherent in the Company’s lending activities excluding loans accounted for under fair value. The allowance for loan losses is maintained through charges to the provision for loan losses in the Consolidated Statements of Income as losses are estimated
10
to have occurred. Loans or portions thereof that are determined to be uncollectible are charged against the allowance, and subsequent recoveries, if any, are credited to the allowance.
The Company performs periodic reviews of its loan and lease portfolios to identify credit risks and to assess the overall collectability of those portfolios. The Company's allowance for loan losses includes a general based component and a specific component. The specific component of the allowance relates to loans considered to be impaired, which includes performing TDRs as well as nonperforming loans. To determine the specific component of the allowance, the loans are evaluated individually based on the borrower's ability to repay amounts owed, collateral, relative risk grade of the loans, and other factors given current events and conditions. The Company generally measures the specific allowance as the difference between the fair value (net realizable value) and the recorded investment of a loan.
The general component of the allowance evaluates the impairments of pools of the loan and lease portfolio collectively. It incorporates a historical valuation allowance and general valuation allowance. The historical loss experience is measured by type of credit and internal risk grade, loss severity, specific homogeneous risk pools. A historical loss ratio and valuation allowance are established for each pool of similar loans and updated periodically based on actual charge-off experience and current events. The general valuation allowance is based on general economic conditions and other qualitative risk factors both internal and external to the Company. It is generally determined by evaluating, among other things: (i) the experience, ability and effectiveness of the Bank's lending management and staff; (ii) the effectiveness of the Bank's loan policies, procedures and internal controls; (iii) changes in asset quality; (iv) changes in loan portfolio volume; (v) the composition and concentrations of credit; (vi) the impact of competition on loan structuring and pricing; (vii) the effectiveness of the internal loan review function; (viii) the impact of environmental risks on portfolio risks; (ix) the impact of rising interest rates on portfolio risk; and (x) national and local economic trends and conditions, and industry conditions. Management evaluates the degree of risk that each one of these components has on the quality of the loan portfolio on a quarterly basis. Each component is determined to have either a high, high-moderate, moderate, low-moderate or low degree of risk. The results are then input into a "general allocation matrix" to determine an appropriate general valuation allowance.
The process of determining the level of the allowance for loan and lease losses requires a high degree of estimate and judgment. It is reasonably possible that actual outcomes may differ from our estimates.
Impaired Loans: A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect the scheduled payments of principal or interest when due according to the contractual terms of the loan agreement. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on a case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed. Factors considered by management when evaluating impaired loans include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Impairment is measured on a loan by loan basis for commercial loans by either the present value of expected future cash flows discounted at the loans effective interest rate, the loan’s obtainable market price, or the fair value of the collateral if the loan is collateral dependent.
Generally, we report loans as impaired based on the method for measuring impairment in accordance with applicable accounting guidance. Loans held for sale are not reported as impaired, as these loans are recorded at lower of cost or fair value. Loans classified as nonperforming and loans that have been modified in a troubled debt restructuring are reported as impaired. Loans modified in a TDR continue to be reported as impaired. The majority of impaired loans are evaluated for an asset-specific allowance. We generally measure impairment and the related asset-specific allowance for impaired loans based on the difference between the recorded investment of the loan and the present value of the expected future cash flows, discounted at the original effective interest rate of the loan. If the loan is collateral dependent, we measure impairment based upon the fair value of the underlying collateral, which we determine based on the current fair value of the collateral less estimated selling costs, instead of discounted cash flows. Loans are identified as collateral dependent if we believe that collateral is the sole source of repayment.
Charge-Offs: We charge off loans as a reduction to the allowance for loan and lease losses when we determine the loan is uncollectible and record subsequent recoveries of previously charged off amounts as an increase to the allowance for loan and lease losses.
Concentration of Credit Risk: The Company’s loans are generally to customers in Southern New Jersey and the Philadelphia area of Pennsylvania. Loans to general building contractors, general merchandise stores, restaurants, motels, warehouse space, and real estate ventures (including construction loans) constitute a majority of commercial loans. The concentrations of credit by type of loan are set forth in Note 4. Generally, loans are collateralized by assets of the borrower and are expected to be repaid from the borrower’s cash flow or proceeds from the sale of selected assets of the borrower.
11
Other Real Estate Owned (“OREO”): Real estate acquired through foreclosure or other proceedings is initially carried at fair value less estimated costs of disposal which establishes a new cost basis. Costs of improving OREO are capitalized to the extent that the carrying value does not exceed its fair value less estimated selling costs. Subsequent valuation adjustments, declines, if any, are recognized as a charge against current earnings. Holding costs are charged to expense. Gains and losses on sales are recognized in noninterest income as they occur. The OREO balance is included in the other assets in the balance sheets.
Interest Rate Risk: The Company is principally engaged in the business of attracting deposits from the general public and using these deposits, together with other borrowed and brokered funds, to make commercial, commercial mortgage, residential mortgage, and consumer loans, and to invest in overnight and term investment securities. Inherent in such activities is interest rate risk that results from differences in the maturities and repricing characteristics of these assets and liabilities. For this reason, management regularly monitors the level of interest rate risk and the potential impact on net income.
Bank Premises and Equipment: Bank premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed and charged to expense using the straight-line method over the estimated useful lives of the assets, generally three years for computers and software, five to ten years for equipment and forty years for buildings. Leasehold improvements are amortized to expense over the shorter of the term of the respective lease or the estimated useful life of the improvements.
Lease: Lease classification is determined at inception for all lease transactions with an initial term greater than one year. At adoption of ASU 2016-02, we elected the practical expedients, which allows us to not reassess the lease classification for any existing leases. Operating leases are included as right-of-use (“ROU”) assets within other assets, and operating lease liabilities are classified as other liabilities on our consolidated balance sheets. Our operating lease expense is included in occupancy and equipment within non-interest expense in our consolidated statements of income.
Stock-Based Compensation: Stock-based compensation expense is based on the grant date fair value, which is estimated using a Black-Scholes option pricing model. The fair value of stock-based compensation used in determining compensation expense generally equal the fair market value of our common stock on the date of grant. We generally recognize compensation expense on a straight-line basis over the award’s requisite service period based on the fair value of the award at grant date. Stock-based compensation expense is included in salaries and associate benefits in the consolidated statements of income.
Revenue recognition: Our revenue includes net interest income on financial instruments and non-interest income. Interest income and fees on loans, investment securities, and other financial instruments are recognized based on the contractual provisions of the underlying arrangements according to applicable accounting guidance. Deposit-related-fee-based revenue within the scope of ASC Topic 606 - Revenue from Contracts with Customers (Topic 606) is included in non-interest income in our consolidated statements of income.
Our deposit-related-fee-based revenues are recognized when or as those services are transferred to the customer and are generally recognized either immediately upon the completion of our service or over time as we perform services. Any services performed over time generally require that we render services each period and therefore we measure our progress in completing these services based upon the passage of time. Deposit-related fees are recognized over the period in which the related service is provided. Service charges on deposit accounts are earned on depository accounts for customers and include fees for account and overdraft services. Account services include fees for event-driven services and fees for periodic account maintenance activities. Our obligation for event-driven services is satisfied at the time of the event when the service is delivered, while our obligation for maintenance services is satisfied over the course of each month. Our obligation for overdraft services is satisfied at the time of the overdraft.
Income Taxes: We recognize the current and deferred tax consequences of all transactions that have been recognized in the financial statements using the provisions of the enacted tax laws. Current income tax expense represents our estimated taxes to be paid or refunded for the current period. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment. Thus, at the enactment date, deferred taxes are remeasured and the change is recognized in income tax expense. The recognition of deferred tax assets requires an assessment to determine the realization of such assets. Realization refers to the incremental benefit achieved through the reduction in future taxes payable or refunds receivable. We establish a valuation allowance for tax assets when it is more likely than not that they will not be realized, based upon all available evidence. Realization of deferred tax assets is dependent on generating sufficient taxable income in the future.
When tax returns are filed, it is highly certain that some positions taken will be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that ultimately would be sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available
12
evidence, management believes it is more-likely-than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. The evaluation of a tax position taken is considered by itself and not offset or aggregated with other positions. Tax positions that meet the more likely than not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest and penalties associated with unrecognized tax benefits would be recognized in income tax expense on the income statement.
The Company did not recognize any interest or penalties related to income tax during the years ended December 31, 2019 and 2018. The Company does not have an accrual for uncertain tax positions as of December 31, 2019 and 2018, as deductions taken and benefits accrued are based on widely understood administrative practices and procedures and are based on clear and unambiguous tax law. Tax returns for all years 2016 and thereafter are subject to further examination by tax authorities, with the exception of the State of New Jersey for which tax returns for all years from 2015 and thereafter are subject to further examination.
The Tax Cuts and Jobs Act (“Tax Act”) was enacted on December 22, 2017 and introduces significant changes to U.S. income tax law. Effective in 2018, the Tax Act reduced the U.S. corporate statutory tax rate from 35% to 21%.
Fair value: Fair value, also referred to as an exit price, is defined as the price that would be received for an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. The fair value accounting guidance provides a three-level fair value hierarchy for classifying financial instruments. This hierarchy is based on whether the inputs to the valuation techniques used to measure fair value are observable or unobservable. Fair value measurement of a financial asset or liability is assigned to a level based on the lowest level of any input that is significant to the fair value measurement in its entirety. The accounting guidance for fair value requires that we maximize the use of observable inputs and minimize the use of unobservable inputs in determining fair value.
Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Our most significant estimates pertain to our allowances for loan and lease losses, fair value measurements, the carrying value of OREO, and the valuation of deferred income taxes. Actual results may differ from the estimates and the differences may be material to the consolidated financial statements.
Segment Reporting: The Company operates one reportable segment of business, “community banking”. Through its community banking segment, the Company provides a broad range of retail and community banking services.
Other Comprehensive Income: Comprehensive income consists of net income and other gains and losses affecting shareholders' equity that, under GAAP, are excluded from net income, including unrealized gains and losses on available for sale securities.
For year 2019 and 2018, we did not reclass any amounts from accumulated other comprehensive income to the income. Following table provides the components of other comprehensive income, reclassifications to net income and the related tax effect for the year ended December 31, 2019 and 2018:
Year ended December 31, | 2019 | 2018 | |||||
(Dollars in thousands) | |||||||
Investment securities: | |||||||
Net unrealized gains (losses) arising during the period | $ | 918 | $ | (624 | ) | ||
Tax effect related to the unrealized loss during the periods | (227 | ) | 148 | ||||
Reclassification of prior tax effects | — | (27 | ) | ||||
Change in other comprehensive income | $ | 691 | $ | (503 | ) | ||
Earnings Per Common Share: Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per common share considers common stock equivalents (when dilutive) outstanding during the period such as options outstanding and convertible preferred stock. To the extent that stock equivalents are anti-dilutive, they have been excluded from the earnings per share calculation. Both basic and diluted earnings per share computations give retroactive effect to a stock dividend declared and paid in 2019 and 2018 (Note 10). Earnings per common share have been computed based on the following for 2019 and 2018:
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2019 | 2018 | ||||||
(Dollars in thousands, except share data) | |||||||
Basic earnings per common share | |||||||
Net income available to common shareholders | $ | 29,817 | $ | 24,378 | |||
Basic weighted-average common shares outstanding | 11,838,096 | 10,592,414 | |||||
Basic earnings per common share | $ | 2.52 | $ | 2.30 | |||
Diluted earnings per common share | |||||||
Net income available to common shareholders | $ | 29,817 | $ | 24,378 | |||
Dividend on Preferred Series B | 24 | 446 | |||||
Net income attributable to diluted common shares | $ | 29,841 | $ | 24,824 | |||
Basic weighted-average common shares outstanding | 11,838,096 | 10,592,414 | |||||
Dilutive potential common shares | 172,986 | 1,410,065 | |||||
Total diluted weighted-average common shares outstanding | 12,011,082 | 12,002,479 | |||||
Diluted earnings per common share | $ | 2.48 | $ | 2.07 | |||
All share and per share information has been retroactively adjusted for the 10% stock dividend declared in January 2020.
For 2019 and 2018, there were 124,000 weighted average option shares outstanding for each year, that were not included in the computation of diluted EPS because these shares were anti-dilutive.
Statement of Cash Flows: Cash and cash equivalents include cash and due from financial institutions and federal funds sold. For the purposes of the statement of cash flows, changes in loans and deposits are shown on a net basis.
Recently Issued Accounting Pronouncements:
During June 2016, the Financial Accounting Standard Board (FASB) issued ASU 2016-13, Financial Instruments-Credit Losses. ASU 2016-13 (Topic 326), replaces the incurred loss impairment methodology in current GAAP with an expected credit loss (CECL) methodology and requires consideration of a broader range of information to determine credit loss estimates. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. Purchased credit impaired loans will receive an allowance account at the acquisition date that represents a component of the purchase price allocation. Credit losses relating to available-for-sale debt securities will be recorded through an allowance for credit losses, with such allowance limited to the amount by which fair value is below amortized cost. The ASU was amended in some aspects by subsequent Accounting Standards Updates. The guidance of the Financial Instruments-Credit Losses is scheduled to be effective for public entities except small reporting companies (SRCs) for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. For all entities, early adoption will continue to be allowed. As a small reporting company, the CECL is not effective for us until after December 15, 2022. As the result, we are not required to estimate of expected credit losses until year 2023.
On February 25, 2016, the FASB issued ASU 2016-02, Leases (Topic 842). ASU 2016-02 includes a lessee accounting model that recognizes two types of leases - finance leases and operating leases. The standard requires lessees to recognize right of use assets and lease liabilities on their consolidated balance sheets and disclose key information about all their leasing arrangements, with certain practical expedients. The amendments were effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. We have adopted the guidance in the first quarter of 2019 under the modified retrospective transition approach. The Company initially recognized right-of-use assets of $2.8 million and lease liabilities of $2.8 million under the operating leases for the lease contracts of its three retail branch locations and a land lease. Please refer to the Note 9. Lease for additional information.
In June 2018, the FASB issued ASU 2018-07, Compensation-Stock Compensation (Topic 718) - Improvements to Nonemployee Share-Based Payment Accounting, which expands the scope of Topic 718 to include share based payment transactions for acquiring goods and services from nonemployees. An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option pricing model and the attribution of cost. The amendments specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The ASU was effective for public business entities for fiscal years beginning after December 15, 2018. The Company adopted the guidance in the first quarter of 2019. The adoption of the guidance did not have a material impact on our consolidated financial statements.
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In March 2017, the FASB issued ASU 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20) - Premium Amortization on Purchased Callable Debt Securities, which requires that entities shorten the amortization period for certain callable debt securities held at a premium and amortize the premium to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The ASU was effective for public business entities for fiscal years beginning after December 15, 2018. The Company adopted the guidance in the first quarter of 2019. The adoption of the guidance did not have any material impact on our consolidated financial statements.
Note 2. Cash and Due from Banks
The Company maintains various deposit accounts with other banks to meet normal funds transaction requirements, to satisfy deposit reserve requirements, and to compensate other banks for certain correspondent services. Management is responsible for assessing the credit risk of its correspondent banks. At December 31, 2019 or 2018, vast majority of the Company's cash deposits with other banks were due from the Federal Reserve Bank of Philadelphia and the Federal Home Loan Bank of New York.
15
Note 3. Investment Securities
The following is a summary of the Company's investments in available for sale and held to maturity securities as of December 31, 2019 and 2018:
As of December 31, 2019 | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | |||||||||||
(Dollars in thousands) | |||||||||||||||
Available for sale: | |||||||||||||||
Corporate debt obligations | $ | 500 | $ | — | $ | — | $ | 500 | |||||||
Residential mortgage-backed securities | 25,989 | 282 | 196 | 26,075 | |||||||||||
Collateralized mortgage obligations | 37 | 1 | — | 38 | |||||||||||
Total available for sale | $ | 26,526 | $ | 283 | $ | 196 | $ | 26,613 | |||||||
Held to maturity: | |||||||||||||||
States and political subdivisions | $ | 1,167 | $ | 263 | $ | — | $ | 1,430 | |||||||
As of December 31, 2018 | Amortized cost | Gross unrealized gains | Gross unrealized losses | Fair value | |||||||||||
(Dollars in thousands) | |||||||||||||||
Available for sale: | |||||||||||||||
Corporate debt obligations | $ | 500 | $ | — | $ | — | $ | 500 | |||||||
Residential mortgage-backed securities | 31,553 | 74 | 906 | 30,721 | |||||||||||
Collateralized mortgage obligations | 56 | 1 | — | 57 | |||||||||||
Total available for sale | $ | 32,109 | $ | 75 | $ | 906 | $ | 31,278 | |||||||
Held to maturity: | |||||||||||||||
States and political subdivisions | $ | 1,113 | $ | 179 | $ | — | $ | 1,292 | |||||||
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The amortized cost and fair value of debt securities classified as available for sale and held to maturity, by contractual maturity as of December 31, 2019, are as follows:
Amortized Cost | Fair Value | ||||||
(Dollars in thousands) | |||||||
Available for sale: | |||||||
Due within one year | $ | — | $ | — | |||
Due after one year through five years | 156 | 150 | |||||
Due after five years through ten years | 11,879 | 11,942 | |||||
Due after ten years | 14,491 | 14,521 | |||||
Total available for sale | $ | 26,526 | $ | 26,613 | |||
Held to maturity: | |||||||
Due within one year | $ | — | $ | — | |||
Due after one year through five years | — | — | |||||
Due after five years through ten years | 1,167 | 1,430 | |||||
Due after ten years | — | — | |||||
Total held to maturity | $ | 1,167 | $ | 1,430 | |||
Expected maturities may differ from contractual maturities because the issuers of certain debt securities do have the right to call or prepay their obligations without any penalty.
During the year ending December 31, 2019 and 2018, the Company did not sell any investment securities. Also, at December 31, 2019 and 2018, the Company used a letter of credit of $40.0 million as collateral to secure public deposits.
The following tables show the gross unrealized losses and fair value of the Company's investments which are aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2019 and December 31, 2018.
As of December 31, 2019 | Less Than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||
Description of Securities | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Available for sale: | ||||||||||||||||||||||||
Residential mortgage-backed securities | $ | 232 | $ | 1 | $ | 10,271 | $ | 195 | $ | 10,503 | $ | 196 | ||||||||||||
Total available for sale | $ | 232 | $ | 1 | $ | 10,271 | $ | 195 | $ | 10,503 | $ | 196 | ||||||||||||
As of December 31, 2018 | Less Than 12 Months | 12 Months or Greater | Total | |||||||||||||||||||||
Description of Securities | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | Fair Value | Unrealized Losses | ||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||
Available for sale: | ||||||||||||||||||||||||
Residential mortgage-backed securities | $ | 12,665 | $ | 257 | $ | 14,527 | $ | 649 | $ | 27,192 | $ | 906 | ||||||||||||
Total available for sale | $ | 12,665 | $ | 257 | $ | 14,527 | $ | 649 | $ | 27,192 | $ | 906 | ||||||||||||
The Company’s unrealized loss for the debt securities is comprised of 1 securities in the less than 12 months loss position and 7 securities in the 12 months or greater loss position at December 31, 2019 and 5 securities in the less than 12 months loss position and 9 securities in the 12 months or greater loss position at December 31, 2018. The mortgage-backed securities that had unrealized losses were issued or guaranteed by the US government or government sponsored entities. The unrealized losses associated with those mortgage-backed securities are generally driven by changes in interest rates and not due to credit losses given the explicit or implicit guarantees provided by the U.S. government. Because the Company does not intend to sell the securities and it is not more likely than not that the Company will be required to sell these investments before recovery of their amortized cost basis, the Company does not consider the unrealized loss in these securities to be OTTI at December 31, 2019.
17
Other Than Temporarily Impaired Debt Securities (OTTI)
On at least a quarterly basis, we review all debt securities that are in an unrealized loss position for OTTI. An investment security is deemed impaired if the fair value of the investment is less than its amortized cost. Amortized cost includes adjustments (if any) made to the cost basis of an investment for accretion, amortization, previous other-than-temporary impairments. After an investment security is determined to be impaired, we evaluate whether the decline in value is other-than-temporary. Please refer to Note 1 - Description of Business and Summary of Significant Accounting Policies for for a detailed description of our accounting policy for OTTI.
Note 4. Loans and Allowance for Loan and Lease Losses
As of December 31, 2019, the Company had $1.42 billion in loans receivable outstanding. Loans held for sale totaled $190,000 at December 31, 2019. Outstanding balances include a total net increase of $138,000 and a net reduction $105,000 at December 31, 2019 and 2018 for unearned income, net deferred loan fees, and unamortized discounts and premiums. The portfolios of loans receivable at December 31, 2019, and December 31, 2018, consist of the following:
December 31, 2019 | December 31, 2018 | ||||||
(Dollars in thousands) | |||||||
Commercial and Industrial | $ | 36,777 | $ | 34,640 | |||
Construction | 231,095 | 139,877 | |||||
Real Estate Mortgage: | |||||||
Commercial – Owner Occupied | 136,753 | 135,617 | |||||
Commercial – Non-owner Occupied | 298,204 | 321,580 | |||||
Residential – 1 to 4 Family | 636,891 | 545,391 | |||||
Residential – Multifamily | 68,258 | 49,628 | |||||
Consumer | 12,771 | 14,424 | |||||
Total Loans | $ | 1,420,749 | $ | 1,241,157 | |||
An age analysis of past due loans by class at December 31, 2019 and December 31, 2018 as follows:
December 31, 2019 | 30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 Days and Not Accruing | Total Past Due | Current | Total Loans | Loans > 90 Days and Accruing | ||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||
Commercial and Industrial | $ | — | $ | — | $ | 286 | $ | 286 | $ | 36,491 | $ | 36,777 | $ | — | |||||||||||||
Construction | — | — | 1,365 | 1,365 | 229,730 | 231,095 | — | ||||||||||||||||||||
Real Estate Mortgage: | |||||||||||||||||||||||||||
Commercial – Owner Occupied | — | 1,722 | 2,702 | 4,424 | 132,329 | 136,753 | — | ||||||||||||||||||||
Commercial – Non-owner Occupied | — | — | 70 | 70 | 298,134 | 298,204 | — | ||||||||||||||||||||
Residential – 1 to 4 Family | — | 262 | 925 | 1,187 | 635,704 | 636,891 | — | ||||||||||||||||||||
Residential – Multifamily | — | — | — | — | 68,258 | 68,258 | — | ||||||||||||||||||||
Consumer | — | — | — | — | 12,771 | 12,771 | — | ||||||||||||||||||||
Total Loans | $ | — | $ | 1,984 | $ | 5,348 | $ | 7,332 | $ | 1,413,417 | $ | 1,420,749 | $ | — | |||||||||||||
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December 31, 2018 | 30-59 Days Past Due | 60-89 Days Past Due | Greater than 90 Days and Not Accruing | Total Past Due | Current | Total Loans | Loans > 90 Days and Accruing | ||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||
Commercial and Industrial | $ | — | $ | — | $ | 14 | $ | 14 | $ | 34,626 | $ | 34,640 | $ | — | |||||||||||||
Construction | — | — | 1,365 | 1,365 | 138,512 | 139,877 | — | ||||||||||||||||||||
Real Estate Mortgage: | |||||||||||||||||||||||||||
Commercial – Owner Occupied | — | — | — | — | 135,617 | 135,617 | — | ||||||||||||||||||||
Commercial – Non-owner Occupied | — | — | — | — | 321,580 | 321,580 | — | ||||||||||||||||||||
Residential – 1 to 4 Family | 81 | 154 | 1,686 | 1,921 | 543,470 | 545,391 | — | ||||||||||||||||||||
Residential – Multifamily | — | — | — | — | 49,628 | 49,628 | — | ||||||||||||||||||||
Consumer | 62 | — | — | 62 | 14,362 | 14,424 | — | ||||||||||||||||||||
Total Loans | $ | 143 | $ | 154 | $ | 3,065 | $ | 3,362 | $ | 1,237,795 | $ | 1,241,157 | $ | — | |||||||||||||
Allowance For Loan and Lease Losses (ALLL)
We maintain the ALLL at a level that we believe to be appropriate to absorb estimated probable credit losses incurred in the loan portfolios as of the balance sheet date. The Company’s accounting policy for ALLL is more fully described in Note 1 - Description of Business and Summary of Significant Accounting Policies.
The following tables present the information regarding the allowance for loan and lease losses and associated loan data:
Twelve Months Ended December 31, 2019 | |||||||||||||||||||||||||||||||
As of December 31, 2019 | Real Estate Mortgage | ||||||||||||||||||||||||||||||
(Dollars in thousands) | Commercial and Industrial | Construction | Commercial Owner Occupied | Commercial Non-owner Occupied | Residential 1 to 4 Family | Residential Multifamily | Consumer | Total | |||||||||||||||||||||||
December 31, 2018 | $ | 718 | $ | 1,694 | $ | 2,062 | $ | 5,853 | $ | 7,917 | $ | 621 | $ | 210 | $ | 19,075 | |||||||||||||||
Charge-offs | — | — | — | — | (56 | ) | — | — | (56 | ) | |||||||||||||||||||||
Recoveries | 16 | 6 | 26 | 39 | 5 | — | — | 92 | |||||||||||||||||||||||
Provisions | 230 | 1,107 | (65 | ) | (32 | ) | 1,285 | 198 | (23 | ) | 2,700 | ||||||||||||||||||||
Ending Balance December 31 2019 | $ | 964 | $ | 2,807 | $ | 2,023 | $ | 5,860 | $ | 9,151 | $ | 819 | $ | 187 | $ | 21,811 | |||||||||||||||
Allowance for loan losses | |||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 286 | $ | 141 | $ | 33 | $ | 457 | $ | 211 | $ | — | $ | — | $ | 1,128 | |||||||||||||||
Collectively evaluated for impairment | 678 | 2,666 | 1,990 | 5,403 | 8,940 | 819 | 187 | 20,683 | |||||||||||||||||||||||
Balance at December 31, 2019 | $ | 964 | $ | 2,807 | $ | 2,023 | $ | 5,860 | $ | 9,151 | $ | 819 | $ | 187 | $ | 21,811 | |||||||||||||||
Loans | |||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 286 | $ | 5,110 | $ | 4,833 | $ | 10,424 | $ | 1,445 | $ | — | $ | — | $ | 22,098 | |||||||||||||||
Collectively evaluated for impairment | 36,491 | 225,985 | 131,920 | 287,780 | 635,446 | 68,258 | 12,771 | 1,398,651 | |||||||||||||||||||||||
Balance at December 31, 2019 | $ | 36,777 | $ | 231,095 | $ | 136,753 | $ | 298,204 | $ | 636,891 | $ | 68,258 | $ | 12,771 | $1,420,749 | ||||||||||||||||
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Twelve Months Ended December 31, 2018 | |||||||||||||||||||||||||||||||
As of December 31, 2018 | Real Estate Mortgage | ||||||||||||||||||||||||||||||
(Dollars in thousands) | Commercial and Industrial | Construction | Commercial Owner Occupied | Commercial Non-owner Occupied | Residential 1 to 4 Family | Residential Multifamily | Consumer | Total | |||||||||||||||||||||||
December 31, 2017 | $ | 684 | $ | 2,068 | $ | 2,017 | $ | 4,630 | $ | 6,277 | $ | 627 | $ | 230 | $ | 16,533 | |||||||||||||||
Charge-offs | (128 | ) | (27 | ) | — | (49 | ) | — | — | (19 | ) | (223 | ) | ||||||||||||||||||
Recoveries | 47 | 600 | 189 | 86 | 43 | — | — | 965 | |||||||||||||||||||||||
Provisions | 115 | (947 | ) | (144 | ) | 1,186 | 1,597 | (6 | ) | (1 | ) | 1,800 | |||||||||||||||||||
Ending Balance December 31 2018 | $ | 718 | $ | 1,694 | $ | 2,062 | $ | 5,853 | $ | 7,917 | $ | 621 | $ | 210 | $ | 19,075 | |||||||||||||||
Allowance for loan losses | |||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 14 | $ | 69 | $ | 36 | $ | 192 | $ | 299 | $ | — | $ | — | $ | 610 | |||||||||||||||
Collectively evaluated for impairment | 704 | 1,625 | 2,026 | 5,661 | 7,618 | 621 | 210 | 18,465 | |||||||||||||||||||||||
Balance at December 31, 2018 | $ | 718 | $ | 1,694 | $ | 2,062 | $ | 5,853 | $ | 7,917 | $ | 621 | $ | 210 | $ | 19,075 | |||||||||||||||
Loans | |||||||||||||||||||||||||||||||
Individually evaluated for impairment | $ | 14 | $ | 5,589 | $ | 2,441 | $ | 11,299 | $ | 2,514 | $ | — | $ | — | $ | 21,857 | |||||||||||||||
Collectively evaluated for impairment | 34,626 | 134,288 | 133,176 | 310,281 | 542,877 | 49,628 | 14,424 | 1,219,300 | |||||||||||||||||||||||
Balance at December 31, 2018 | $ | 34,640 | $ | 139,877 | $ | 135,617 | $ | 321,580 | $ | 545,391 | $ | 49,628 | $ | 14,424 | $1,241,157 | ||||||||||||||||
Impaired Loans:
A loan is considered impaired when, based on the current information and events, it is probable that the Company will be unable to collect the payments of principal and interest as of the date such payments were due. Loans are placed on non-accrual status when, in management's opinion, the borrower may be unable to meet payment obligations as they become due, as well as when a loan is 90 days past due, unless the loan is well secured and in the process of collection, as required by regulatory provisions. When interest accrual is discontinued, all unpaid accrued interest is reversed. Interest income is subsequently recognized only to the extent cash payments are received in excess of principal due. Loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
All our impaired loans are assessed for recoverability based on an independent third-party full appraisal to determine the net realizable value (“NRV”) based on the fair value of the underlying collateral, less cost to sell and other costs or the present value of discounted cash flows in the case of certain impaired loans that are not collateral dependent.
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The following tables provide further detail on impaired loans and the associated ALLL at December 31, 2019 and December 31, 2018:
December 31, 2019 | Recorded Investment | Unpaid Principal Balance | Related Allowance | ||||||||
(Dollars in thousands) | |||||||||||
With no related allowance recorded: | |||||||||||
Commercial and Industrial | $ | — | $ | — | $ | — | |||||
Construction | — | — | — | ||||||||
Real Estate Mortgage: | |||||||||||
Commercial – Owner Occupied | 2,702 | 2,702 | — | ||||||||
Commercial – Non-owner Occupied | 70 | 70 | — | ||||||||
Residential – 1 to 4 Family | 194 | 194 | — | ||||||||
Residential – Multifamily | — | — | — | ||||||||
Consumer | — | — | — | ||||||||
2,966 | 2,966 | — | |||||||||
With an allowance recorded: | |||||||||||
Commercial and Industrial | 286 | 292 | 286 | ||||||||
Construction | 5,110 | 9,600 | 141 | ||||||||
Real Estate Mortgage: | |||||||||||
Commercial – Owner Occupied | 2,131 | 2,131 | 33 | ||||||||
Commercial – Non-owner Occupied | 10,354 | 10,355 | 457 | ||||||||
Residential – 1 to 4 Family | 1,251 | 1,251 | 211 | ||||||||
Residential – Multifamily | — | — | — | ||||||||
Consumer | — | — | — | ||||||||
19,132 | 23,629 | 1,128 | |||||||||
Total: | |||||||||||
Commercial and Industrial | 286 | 292 | 286 | ||||||||
Construction | 5,110 | 9,600 | 141 | ||||||||
Real Estate Mortgage: | |||||||||||
Commercial – Owner Occupied | 4,833 | 4,833 | 33 | ||||||||
Commercial – Non-owner Occupied | 10,424 | 10,425 | 457 | ||||||||
Residential – 1 to 4 Family | 1,445 | 1,445 | 211 | ||||||||
Residential – Multifamily | — | — | — | ||||||||
Consumer | — | — | — | ||||||||
$ | 22,098 | $ | 26,595 | $ | 1,128 | ||||||
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December 31, 2018 | Recorded Investment | Unpaid Principal Balance | Related Allowance | ||||||||
(Dollars in thousands) | |||||||||||
With no related allowance recorded: | |||||||||||
Commercial and Industrial | $ | — | $ | — | $ | — | |||||
Construction: | — | — | — | ||||||||
Real Estate Mortgage: | |||||||||||
Commercial – Owner Occupied | — | — | — | ||||||||
Commercial – Non-owner Occupied | — | — | — | ||||||||
Residential – 1 to 4 Family | 1,131 | 1,131 | — | ||||||||
Residential – Multifamily | — | — | — | ||||||||
Consumer | — | — | — | ||||||||
1,131 | 1,131 | — | |||||||||
With an allowance recorded: | |||||||||||
Commercial and Industrial | 14 | 19 | 14 | ||||||||
Construction: | 5,589 | 10,080 | 69 | ||||||||
Real Estate Mortgage: | |||||||||||
Commercial – Owner Occupied | 2,441 | 2,441 | 36 | ||||||||
Commercial – Non-owner Occupied | 11,299 | 11,299 | 192 | ||||||||
Residential – 1 to 4 Family | 1,383 | 1,383 | 299 | ||||||||
Residential – Multifamily | — | — | — | ||||||||
Consumer | — | — | — | ||||||||
20,726 | 25,222 | 610 | |||||||||
Total: | |||||||||||
Commercial and Industrial | 14 | 19 | 14 | ||||||||
Construction: | 5,589 | 10,080 | 69 | ||||||||
Real Estate Mortgage: | |||||||||||
Commercial – Owner Occupied | 2,441 | 2,441 | 36 | ||||||||
Commercial – Non-owner Occupied | 11,299 | 11,299 | 192 | ||||||||
Residential – 1 to 4 Family | 2,514 | 2,514 | 299 | ||||||||
Residential – Multifamily | — | — | — | ||||||||
Consumer | — | — | — | ||||||||
$ | 21,857 | $ | 26,353 | $ | 610 | ||||||
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The following table presents by loan portfolio class, the average recorded investment and interest income recognized on impaired loans for the years ended December 31, 2019 and 2018:
Year Ended December 31, | |||||||||||||||
2019 | 2018 | ||||||||||||||
Average Recorded Investment | Interest Income Recognized | Average Recorded Investment | Interest Income Recognized | ||||||||||||
(Dollars in thousands) | |||||||||||||||
Commercial and Industrial | $ | 127 | $ | 18 | $ | 15 | $ | 1 | |||||||
Commercial | 5,350 | 173 | 5,781 | 191 | |||||||||||
Real Estate Mortgage: | |||||||||||||||
Commercial – Owner Occupied | 3,956 | 126 | 3,372 | 134 | |||||||||||
Commercial – Non-owner Occupied | 11,275 | 624 | 11,850 | 606 | |||||||||||
Residential – 1 to 4 Family | 2,273 | 36 | 2,704 | 74 | |||||||||||
Residential – Multifamily | — | — | — | — | |||||||||||
Consumer | — | — | 16 | — | |||||||||||
Total | $ | 22,981 | $ | 977 | $ | 23,738 | $ | 1,006 | |||||||
Troubled Debt Restructuring (TDRs)
We reported performing TDR loans (not reported as non-accrual loans) of $16.8 million and $18.8 million, respectively, at December 31, 2019 and December 31, 2018. Non-performing TDRs were $281,000 at December 31, 2019. There were no non performing TDRs at December 31, 2018. There were no new loans modified as a TDR and no additional commitments to lend additional funds to debtors whose loans have been modified in TDRs for the year ended December 31, 2019 and the year ended December 31, 2018, respectively.
A TDR is a loan the terms of which have been restructured in a manner that grants a concession to a borrower experiencing financial difficulty. TDRs result from our loss mitigation activities that include rate reductions, extension of maturity, or a combination of both, which are intended to minimize economic loss and to avoid foreclosure or repossession of collateral. TDRs are classified as impaired loans and are included in the impaired loan disclosures. TDRs are also evaluated to determine whether they should be placed on non-accrual status. Once a loan becomes a TDR, it will continue to be reported as a TDR until it is repaid in full, foreclosed, sold or it meets the criteria to be removed from TDR status.
At the time a loan is modified in a TDR, we consider the following factors to determine whether the loan should accrue interest:
• | Whether there is a period of current payment history under the current terms, typically 6 months; |
• | Whether the loan is current at the time of restructuring; and |
• | Whether we expect the loan to continue to perform under the restructured terms with a debt coverage ratio that complies with the Bank’s credit underwriting policy of 1.25 times debt service. |
TDRs are generally included in nonaccrual loans and may return to performing status after a minimum of six consecutive monthly payments under restructured terms and also meeting other performance indicators. We review the financial performance of the borrower over the past year to be reasonably assured of repayment and performance according to the modified terms. This review consists of an analysis of the borrower’s historical results; the borrower’s projected results over the next four quarters; and current financial information of the borrower and any guarantors. The projected repayment source needs to be reliable, verifiable, quantifiable and sustainable. At the time of restructuring, the amount of the loan principal for which we are not reasonably assured of repayment is charged-off, but not forgiven.
All TDRs are also reviewed quarterly to determine the amount of any impairment. The nature and extent of impairment of TDRs, including those that have experienced a subsequent default, is considered in the determination of an appropriate level of allowance for loan losses. For the TDR loans, we had specific reserves of $607,300 and $306,000 in the allowance at December 31, 2019 and December 31, 2018, respectively. Some loan modifications classified as TDRs may not ultimately result in the full collection of principal and interest, as modified, and result in potential incremental losses. These potential incremental losses have been factored into our overall allowance for loan losses estimate.
23
Credit Quality Indicators
As part of the on-going monitoring of the credit quality of the Company's loan portfolio, management tracks certain credit quality indicators including trends related to the risk grades of loans, the level of classified loans, net charge-offs, nonperforming loans (see details above) and the general economic conditions in the region.
The Company utilizes a risk grading matrix to assign a risk grade to each of its loans. Loans are graded on a scale of 1 to 7. Grades 1 through 4 are considered “Pass”. A description of the general characteristics of the seven risk grades is as follows:
1. | Good: Borrower exhibits the strongest overall financial condition and represents the most creditworthy profile. |
2. | Satisfactory (A): Borrower reflects a well-balanced financial condition, demonstrates a high level of creditworthiness and typically will have a strong banking relationship with the Bank. |
3. | Satisfactory (B): Borrower exhibits a balanced financial condition and does not expose the Bank to more than a normal or average overall amount of risk. Loans are considered fully collectable. |
4. | Watch List: Borrower reflects a fair financial condition, but there exists an overall greater than average risk. Risk is deemed acceptable by virtue of increased monitoring and control over borrowings. Probability of timely repayment is present. |
5. | Other Assets Especially Mentioned (OAEM): Financial condition is such that assets in this category have a potential weakness or pose unwarranted financial risk to the Bank even though the asset value is not currently impaired. The asset does not currently warrant adverse classification but if not corrected could weaken and could create future increased risk exposure. Includes loans which require an increased degree of monitoring or servicing as a result of internal or external changes. |
6. | Substandard: This classification represents more severe cases of #5 (OAEM) characteristics that require increased monitoring. Assets are characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected. Assets are inadequately protected by the current net worth and paying capacity of the borrower or of the collateral. Asset has a well-defined weakness or weaknesses that impairs the ability to repay debt and jeopardizes the timely liquidation or realization of the collateral at the asset’s net book value. |
7. | Doubtful: Assets which have all the weaknesses inherent in those assets classified #6 (Substandard) but the risks are more severe relative to financial deterioration in capital and/or asset value; accounting/evaluation techniques may be questionable and the overall possibility for collection in full is highly improbable. Borrowers in this category require constant monitoring, are considered work out loans and present the potential for future loss to the Bank. |
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An analysis of the credit risk profile by internally assigned grades as of December 31, 2019 and 2018, is as follows:
At December 31, 2019 | Pass | OAEM | Substandard | Doubtful | Total | ||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Commercial and Industrial | $ | 36,491 | $ | — | $ | 286 | $ | — | $ | 36,777 | |||||||||
Construction | 219,289 | 4,275 | 7,531 | — | 231,095 | ||||||||||||||
Real Estate Mortgage: | |||||||||||||||||||
Commercial – Owner Occupied | 134,051 | — | 2,702 | — | 136,753 | ||||||||||||||
Commercial – Non-owner Occupied | 298,006 | — | 198 | — | 298,204 | ||||||||||||||
Residential – 1 to 4 Family | 634,937 | 920 | 1,034 | — | 636,891 | ||||||||||||||
Residential – Multifamily | 68,258 | — | — | — | 68,258 | ||||||||||||||
Consumer | 12,771 | — | — | — | 12,771 | ||||||||||||||
Total | $ | 1,403,803 | $ | 5,195 | $ | 11,751 | $ | — | $ | 1,420,749 | |||||||||
At December 31, 2018 | Pass | OAEM | Substandard | Doubtful | Total | ||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Commercial and Industrial | $ | 34,626 | $ | — | $ | 14 | $ | — | $ | 34,640 | |||||||||
Construction: | 127,523 | 4,503 | 7,851 | — | 139,877 | ||||||||||||||
Real Estate Mortgage: | |||||||||||||||||||
Commercial – Owner Occupied | 135,617 | — | — | — | 135,617 | ||||||||||||||
Commercial – Non-owner Occupied | 321,446 | — | 134 | — | 321,580 | ||||||||||||||
Residential – 1 to 4 Family | 542,865 | 719 | 1,807 | — | 545,391 | ||||||||||||||
Residential – Multifamily | 49,628 | — | — | — | 49,628 | ||||||||||||||
Consumer | 14,424 | — | — | — | 14,424 | ||||||||||||||
Total | $ | 1,226,129 | $ | 5,222 | $ | 9,806 | $ | — | $ | 1,241,157 | |||||||||
Loans to Related Parties: In the normal course of business, the Company has granted loans to its executive officers, directors and their affiliates (related parties). All loans to related parties were made in the ordinary course of business; were made on substantially the same terms, including interest rates and collateral, as those prevailing at the same time for comparable loans with persons not related to the Bank; and did not involve more than the normal risk of collectability or present other unfavorable features.
An analysis of the activity of such related party loans for 2019 is as follows:
2019 | |||
(Dollars in thousands) | |||
Balance, beginning of year | $ | 13,079 | |
Advances | 467 | ||
Less: repayments | (1,467 | ) | |
Balance, end of year | $ | 12,079 | |
Pledged Loans: At December 31, 2019 and 2018, approximately $502.0 million and $425.2 million, respectively, of unpaid principal balance of loans were pledged to the FHLBNY on borrowings (Note 7). This pledge consists of a blanket lien on residential mortgages and certain qualifying commercial real estate loans.
Concentrations of Credit: Most of the Company's lending activity occurs within the areas of southern New Jersey and southeastern Pennsylvania, as well as other markets. We maintain discipline in our lending with a focus on portfolio diversification. In our underwriting process, we limits on loans to one borrower, one industry as well as product concentrations. Our loan portfolio consists of residential, commercial real estate loans, construction loans, commercial and industry loans as well as consumer loans.
25
Note 5. OREO
Other real estate owned (OREO) at December 31, 2019 was $4.7 million, compared to $5.1 million at December 31, 2018, a decreased of $397,000. The OREO balances for 2019 and 2018 are included in the other assets in the balance sheets. The real estate owned at, December 31, 2019, consisted of nine properties, the largest being a commercial building being carried at $2.0 million. During 2019, the Company disposed of $2.8 million of OREO, recognizing a gain of $86,000, compared to $2.8 million of OREO sold in 2018, recognizing a gain of $209,000. Also during 2019, the Company wrote down OREO property by $332,000, compared to $899,000 of write-downs in 2018, based on a decline in appraised values. Operating expenses related to OREO, net of related income, for 2019 and 2018, were $415,000 and $611,000, respectively.
An analysis of OREO activity for the years ended December 31, 2019 and 2018 is as follows:
For the Year Ended December 31, | |||||||
2019 | 2018 | ||||||
(Dollars in thousands) | |||||||
Balance at beginning of period | $ | 5,124 | $ | 7,248 | |||
Real estate acquired in settlement of loans | 2,751 | 1,622 | |||||
Sales of OREO, net | (2,771 | ) | (2,847 | ) | |||
Valuation adjustments and donations | (377 | ) | (899 | ) | |||
Balance at end of period | $ | 4,727 | $ | 5,124 | |||
Note 6. Deposits
Deposits at December 31, 2019 and 2018, consisted of the following:
2019 | 2018 | ||||||
(Dollars in thousands) | |||||||
Demand deposits, noninterest-bearing | $ | 259,269 | $ | 360,329 | |||
Checking accounts | 55,606 | 52,721 | |||||
Money market deposits | 232,115 | 208,335 | |||||
Savings deposits | 105,554 | 131,127 | |||||
Time deposits of $250,000 or more | 123,787 | 59,455 | |||||
Other time deposits | 432,260 | 279,512 | |||||
Brokered time deposits | 130,628 | 92,394 | |||||
Total deposits | $ | 1,339,219 | $ | 1,183,873 | |||
Scheduled maturities of certificates of deposit at December 31, 2019 are as follows:
Years Ending December 31, | (Dollars in thousands) | ||
2020 | $ | 534,185 | |
2021 | 141,210 | ||
2022 | 7,718 | ||
2023 | 2,483 | ||
2024 | 1,065 | ||
Thereafter | 14 | ||
Total | $ | 686,675 | |
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Note 7. Borrowings
An analysis of borrowings at December 31, 2019 and 2018 is as follows:
2019 | 2018 | ||||||||||||||
Maturity Date or Range | Amount | Weighted Average Rate | Amount | Weighted Average Rate | |||||||||||
(Dollars in thousands, except rates) | |||||||||||||||
Borrowed funds: | |||||||||||||||
Federal Home Loan Bank advances | Less than one year | $ | 112,150 | 2.33 | % | $ | 68,650 | 2.58 | % | ||||||
One to three years | 22,500 | 2.84 | % | 36,000 | 2.85 | % | |||||||||
Total | $ | 134,650 | $ | 104,650 | |||||||||||
Subordinated debentures, capital trusts | November 2035 | $ | 5,155 | 3.57 | % | $ | 5,155 | 4.31 | % | ||||||
November 2035 | 5,155 | 3.57 | % | 5,155 | 4.31 | % | |||||||||
September 2037 | 3,093 | 3.39 | % | 3,093 | 4.29 | % | |||||||||
Total | $ | 13,403 | $ | 13,403 | |||||||||||
At December 31, 2019, the Company had a $380.9 million line of credit from the FHLBNY, of which $134.7 million, as detailed above, was outstanding, $40.0 million was a letter of credit to secure public deposits, and $206.2 million was unused.
Subordinated Debentures – Capital Trusts: On August 23, 2005, Parke Capital Trust I, a Delaware statutory business trust and a wholly-owned subsidiary of the Company, issued $5,000,000 of variable rate capital trust pass-through securities to investors. The variable interest rate re-prices quarterly at the three-month LIBOR plus 1.91% and was 3.57% at December 31, 2019. Parke Capital Trust I purchased $5,155,000 of variable rate junior subordinated deferrable interest debentures from the Company. The debentures are the sole asset of the Trust. The terms of the junior subordinated debentures are the same as the terms of the capital securities. The Company has also fully and unconditionally guaranteed the obligations of the Trust under the capital securities. The capital securities are redeemable by the Company on or after November 23, 2010, at par. The capital securities must be redeemed upon final maturity of the subordinated debentures on November 23, 2035. Proceeds of approximately $4.2 million were contributed to paid-in capital at the Bank. The remaining $955,000 was retained at the Company for future use.
On August 23, 2005, Parke Capital Trust II, a Delaware statutory business trust and a wholly-owned subsidiary of the Company, issued $5,000,000 of fixed/variable rate capital trust pass-through securities to investors. Currently, the interest rate is variable at 3.57%. The variable interest rate re-prices quarterly at the three-month LIBOR plus 1.91% beginning November 23, 2010. Parke Capital Trust II purchased $5,155,000 of variable rate junior subordinated deferrable interest debentures from the Company. The debentures are the sole asset of the Trust. The terms of the junior subordinated debentures are the same as the terms of the capital securities. The Company has also fully and unconditionally guaranteed the obligations of the Trust under the capital securities. The capital securities are redeemable by the Company on or after November 23, 2010, at par. The capital securities must be redeemed upon final maturity of the subordinated debentures on November 23, 2035. Proceeds of approximately $4.2 million were contributed to paid-in capital at the Bank. The remaining $955,000 was retained at the Company for future use.
On June 21, 2007, Parke Capital Trust III, a Delaware statutory business trust and a wholly-owned subsidiary of the Company, issued $3,000,000 of variable rate capital trust pass-through securities to investors. The variable interest rate re-prices quarterly at the three-month LIBOR plus 1.89% and was 3.39% at December 31, 2019. Parke Capital Trust III purchased $3,093,000 of variable rate junior subordinated deferrable interest debentures from the Company. The debentures are the sole asset of the Trust. The terms of the junior subordinated debentures are the same as the terms of the capital securities. The Company has also fully and unconditionally guaranteed the obligations of the Trust under the capital securities. The capital securities are redeemable by the Company on or after December 15, 2012, at par. The capital securities must be redeemed upon final maturity of the subordinated debentures on September 15, 2037. The proceeds were contributed to paid-in capital at the Bank.
27
Note 8. Company Premises and Equipment
A summary of the cost and accumulated depreciation and amortization of Company premises and equipment as of December 31, 2019 and 2018 is as follows:
Estimated Useful lives | 2019 | 2018 | |||||||
(Dollars in thousands) | |||||||||
Land | $ | 1,044 | $ | 1,044 | |||||
Building and improvements | 12 years | 7,233 | 7,191 | ||||||
Furniture and equipment | 5 years | 3,628 | 3,076 | ||||||
Total premises and equipment | 11,905 | 11,311 | |||||||
Less: accumulated depreciation and amortization | (4,959 | ) | (4,528 | ) | |||||
Premises and equipment, net | $ | 6,946 | $ | 6,783 | |||||
Depreciation and amortization expense was $431,000 and $380,000 in 2019 and 2018, respectively.
Note 9. Leases
We lease three retail branches and a parcel of land for a retail branch location. These leases generally have remaining terms of 6 years or less except the land lease, which has a remaining lease term of eighty-six years. Some of the leases may include options to renew the leases. The exercise of lease renewal is at our sole discretion.
When we adopted the Accounting Standards Update (ASU) 2016-02, we recognized operating right-of-use assets and lease liabilities each for $2.8 million. At adoption of ASU 2016-02, we elected the practical expedients package, which allows us to not reassess the lease classification for any existing leases. All our leases existed before the adoption of the new lease standard were measured under operating leases according to the applicable GAAP standard then. As the result, we have recorded all our lease as operating leases.
Our right-of-use assets and lease liabilities for operating leases are included in other assets and other liabilities on our consolidated balance sheets. We use interest rate implicit in the lease or incremental borrowing rate in determining the present value of lease payments. At December 31, 2019, we had future minimum lease payments of $27.6 million and imputed interest $25.1 million and lease liability $2.5 million. The weighted average remaining lease term was 50.99 year and weighted average discount rate was 7.28% at December 31, 2019, respectively. We also sublease some space of the one of our leased facilities to a company. Our operating lease expense is included in occupancy expenses within non-interest expense in our consolidated statements of income. Total operating lease expense consists of operating lease cost, which is recognized on a straight-line basis over the lease term, and variable lease cost, which is recognized based on actual amounts incurred.
The following table presents information about our operating leases at the year ended December 31, 2019.
Dollars in thousands | 2019 | ||
Lease right of use assets (ROU) | $ | 2,544 | |
Lease liabilities | $ | 2,544 | |
The following table presents future undiscounted cash flows on our operating leases:
Years Ending December 31, | (Dollars in thousands) | ||
2020 | $ | 309 | |
2021 | 319 | ||
2022 | 290 | ||
2023 | 250 | ||
2024 | 252 | ||
Thereafter | 26,211 | ||
Total undiscounted lease payments | $ | 27,631 | |
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Note 10. Shareholders’ Equity
Common Stock Dividend: The Company paid a quarterly cash dividend each quarter of 2019. The first quarter dividend declared was $0.14 per share and paid in April 2019. The dividend declared was increased to $0.16 per share in the second, third and fourth quarters of 2019. The second and third quarter dividend declared were paid in July and October. The fourth quarter dividend was paid in January, 2020. The Company also paid a cash dividend $1.5 million on the common stock on January 25, 2019 which had been declared in the fourth quarter of 2018. During 2019 the Company paid $6.5 million in common stock cash dividends.
In January 2020, the Company declared a 10% common stock dividend to shareholders. The Company declared the stock dividend before the Company's 2019 financial statements are issued or are available to be issued. As the result, the company retroactively adjusted the assumed dividend shares 1,077,121 to the outstanding shares at December 31, 2019. All share and per share information have been retroactively adjusted to give effect to the stock dividend for the periods presented.
The timing and amount of future dividends will be within the discretion of the Board of Directors and will depend on the consolidated earnings, financial condition, liquidity, and capital requirements of the Company and its subsidiaries, applicable governmental regulations and policies, and other factors deemed relevant by the Board.
Treasury Stock: The Company, in 2015, announced plans to purchase up to 500,000 shares of its own stock. During 2016, the Company purchased 294 shares at an average cost of $12.61 per share.
Stock Options: In 2015, the shareholders approved the 2015 Equity Incentive Plan (the "Plan"). The Plan is a "non-qualified" stock option plan. Under the plan, stock options have generally been granted with an exercise price equal to the fair value of the company’s common stock on the grant date. All options issued have a 10-year contractual term and vest over five years.
In January 2016, the Company awarded 145,300 options to its directors and certain officers and employees. In August 2018, the Company awarded 124,000 options to its directors and certain officers and employees. The weighted average grant date fair value of stock option awards granted in 2018 was $3.83 per share. The company did not grant any options in 2019. Compensation expense related to options is measured based on the grant-date fair value determined using the Black-Scholes valuation model. The outstanding options at December 31, 2019 have a weighted average exercise price of $14.80.
We recognize compensation expense for stock options on a straight-line basis over the specified vesting period. Net compensation expense for the employees and directors’ option grants recognized during 2019 and 2018 amounted to $166,400 and $104,200, respectively. The remaining unrecognized compensation expense for the employees and directors’ option at December 31, 2019 is $422,300.
The following table summarizes stock option activity of employees and directors for the year ended December 31, 2019.
Options | Shares | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | Aggregate Intrinsic Value | ||||||
Outstanding at January 1, 2019 | 291,584 | $14.36 | ||||||||
Granted | — | $— | ||||||||
Exercised | (15,584 | ) | $8.59 | |||||||
Expired/terminated | (5,324 | ) | $8.59 | |||||||
Outstanding at December 31, 2019: | 270,676 | $14.80 | 7.2 | $ | 2,822,610 | |||||
Exercisable at December 31, 2019: | 106,577 | $11.75 | 6.7 | $ | 1,437,151 | |||||
* The data above did not give retrospectively adjustment for the assumed stock dividend declared in January 2020.
Under 2015 Equity Incentive Plan, the Company was authorized to issue 50,000 shares of restricted stock upon the grant of awards. All restricted stocks vests over five years. The company granted 1,460 shares and 1,148 shares of the restricted stock in 2019 and 2018, respectively, in which 522 shares and 230 shares of restricted stock were vested and exercised in 2019 and 2018. The nonvesting restricted stocks were 1,816 shares and 918 at December 31, 2019 and 2018. The weighted average of the grant date fair values were $19.02 and $19.93 per share for the the awards of 2019 and 2018, respectively. The Company recognized $9,900 and $4,500 compensation costs of the restricted stocks during year 2019 and 2018.
29
Preferred Stock: In December of 2013, the Company completed a private placement of newly designated 6% Non-Cumulative Perpetual Convertible Preferred Stock, Series B, with a liquidation preference of $1,000 per share. The Company sold 20,000 shares in the placement for gross proceeds of $20.0 million. Each share of Series B Preferred Stock is convertible, at the option of the holder into approximately 125.05 shares of Common Stock at December 31, 2019. There were 500 shares of Series B Preferred Stock outstanding at December 31, 2019. Upon full conversion of the outstanding shares of the Series B Preferred Stock, the Company will issue approximately 62,553 shares of Common Stock assuming that the conversion rate does not change. The conversion rate and the total number of shares to be issued would be adjusted for future stock dividends, stock splits and other corporate actions. The conversion rate was set using a conversion price for the common stock of $10.64, which was approximately 20% over the closing price of the Common Stock on October 10, 2013, the day the Series B Preferred Stock was priced.
During 2019 and 2018, preferred stockholders converted 724 and 14,747 shares of preferred shares into 90,532 and 1,843,761 shares of common stock.
The Company has recorded dividends on preferred stock in the approximate amount of $24,000 and $446,000 for the years ended December 31, 2019 and 2018, respectively. The Company paid cash dividend $60 per share on the preferred stock for year 2019. The preferred stock qualifies for and is accounted for as equity securities and is included in the Company’s Tier I capital since issued.
Non-controlling interests: The Company has a joint venture with Bridgestone Capital LLC in PDL LLC, a joint venture formed in 2018 to originate short-term alternative real estate loan products. The Company has a 51% ownership interest in the joint venture. For the year ended December 31, 2018, Bridgestone Capital LLC made a $1.2 million capital contribution to PDL.
Note 11. Income Taxes
Income tax expense for 2019 and 2018 consisted of the following:
2019 | 2018 | ||||||
(Dollars in thousands) | |||||||
Current tax expense: | |||||||
Federal | $ | 7,719 | $ | 6,593 | |||
State | 2,229 | 1,726 | |||||
9,948 | 8,319 | ||||||
Deferred tax benefit/expense | (163 | ) | 58 | ||||
Income tax expense | $ | 9,785 | $ | 8,377 | |||
30
The components of the net deferred tax asset at December 31, 2019 and 2018 were as follows:
2019 | 2018 | ||||||
(Dollars in thousands) | |||||||
Deferred tax assets: | |||||||
Allowance for loan losses | $ | 5,350 | $ | 4,611 | |||
Supplemental Executive Retirement Plan ("SERP") | 1,459 | 1,321 | |||||
OREO writedowns | 480 | 1,191 | |||||
Nonaccrued interest | 466 | 296 | |||||
Non-qualified stock options and restricted stock | 59 | 39 | |||||
Write-down on partnership investment | 134 | 132 | |||||
Unrealized loss | — | 197 | |||||
Other | 84 | — | |||||
8,032 | 7,787 | ||||||
Valuation allowance | (134 | ) | (132 | ) | |||
Deferred tax liabilities: | |||||||
Depreciation | (106 | ) | (54 | ) | |||
Partnership income | (67 | ) | (28 | ) | |||
Unrealized gain | (29 | ) | — | ||||
Deferred loan costs | (1,249 | ) | (1,062 | ) | |||
Net deferred tax asset | $ | 6,447 | $ | 6,511 | |||
31
A reconciliation of the Company’s effective income tax rate with the statutory federal rate for 2019 and 2018 is as follows:
2019 | 2018 | ||||||
(Dollars in thousands) | |||||||
At Federal statutory rate | $ | 8,415 | $ | 7,017 | |||
Adjustments resulting from: | |||||||
State income taxes, net of Federal tax benefit | 1,677 | 1,530 | |||||
Non-controlling interest | (94 | ) | (45 | ) | |||
Tax exempt income | (11 | ) | (12 | ) | |||
BOLI | (126 | ) | (129 | ) | |||
Stock compensation | (9 | ) | (3 | ) | |||
Nondeductible expenses | 1 | — | |||||
Other | (68 | ) | 19 | ||||
$ | 9,785 | $ | 8,377 | ||||
Management has evaluated the Company’s tax positions and concluded that the Company has taken no uncertain tax positions that require adjustments to the financial statements. With few exceptions, the Company is no longer subject to income tax examinations by the U.S. federal or local tax authorities for years before 2016, and by the State of New Jersey for years before 2015. The Company recorded a valuation allowance relating to the write down of a partnership investment. Management has concluded that these capital losses will not be realizable once incurred.
The Company recorded income tax expense of $9.8 million on income before taxes of $40.1 million on for the year ended December 31, 2019, resulting in an effective tax rate of 24.4%, compared to income tax expense of $8.4 million on income before taxes of $33.4 million for the same period of 2018, resulting in an effective tax rate of 25.1%.
Note 12. Retirement Plans
The Company has a Supplemental Executive Retirement Plan (“SERP”) covering certain members of management.
The net periodic SERP pension cost was approximately $515,000 in 2019 and $685,000 in 2018. The unfunded benefit obligation, which was included in other liabilities, was approximately $5.9 million at December 31, 2019 and $5.5 million at December 31, 2018.
The benefit obligation at December 31, 2019 and December 31, 2018 was calculated as follows:
2019 | 2018 | ||||||
(Dollars in thousands) | |||||||
Benefit obligation, January 1 | $ | 5,521 | $ | 4,901 | |||
Service cost | 226 | 417 | |||||
Interest cost | 289 | 268 | |||||
Benefits paid | (87 | ) | (65 | ) | |||
Accrued liability at December 31 | $ | 5,949 | $ | 5,521 | |||
32
The net periodic SERP pension cost for 2019 and 2018 was calculated as follows:
2019 | 2018 | ||||||
(Dollars in thousands) | |||||||
Service cost | $ | 226 | $ | 417 | |||
Interest cost | 289 | 268 | |||||
$ | 515 | $ | 685 | ||||
The service costs for 2019 and 2018 are included in the compensation cost in the income statements. The discount rate used in determining the actuarial present value of the projected benefit obligation was 5.5% for 2019 and 2018. Annual benefit payments are estimated at $371,668 for 2020, $650,633 for 2021, $650,633 for 2022, $650,633 for 2023, $650,633 for 2024 and $5.8 million thereafter.
The Company has a 401(k) Plan covering substantially all employees. Under the Plan, the Company is required to contribute 3% of all qualifying employees’ eligible salary to the Plan. The Plan expense in 2019 was $217,300 and $180,500 in 2018.
Note 13. Regulatory Matters
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can result in regulatory action. The final rules implementing Basel Committee on Banking Supervision's capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under the Basel III rules, the Company must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer is 2.5% and 1.875 for 2019 and 2018, respectively. The Bank made a one-time election to opt-out the net unrealized gain or loss on available for sale securities in computing regulatory capital. At December 31, 2019, the Bank was considered “well capitalized" under the regulatory framework for prompt corrective action.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2019 and 2018 the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution's category.
33
To be categorized as well capitalized, the Bank must maintain minimum total risk based, Tier 1 risk based, and Tier 1 leverage ratios as set forth in the following tables.
As of December 31, 2019 | Actual | For Capital Adequacy Purpose | For Capital Adequacy Purposes with Capital Conservation Buffer * | To be Well Capitalized Under Prompt Corrective Action Provisions | |||||||||||||
Company | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||
(Dollars in thousands except ratios) | |||||||||||||||||
Total risk-based capital | $ | 208,013 | 16.70% | $ | 99,654 | 8.00% | $ | 130,795 | 10.50% | $ | 124,567 | 10.00 | % | ||||
Tier 1 risk-based capital | 192,365 | 15.44% | 74,740 | 6.00% | 105,882 | 8.50% | 99,654 | 8.00 | % | ||||||||
Tier 1 leverage | 192,365 | 11.87% | 64,802 | 4.00% | 64,802 | 4.00% | 81,002 | 5.00 | % | ||||||||
Tier 1 common equity | 177,068 | 14.21% | 56,055 | 4.50% | 87,197 | 7.00% | 80,969 | 6.50 | % | ||||||||
Parke Bank | |||||||||||||||||
Total risk-based capital | $ | 207,620 | 16.67% | $ | 99,621 | 8.00% | $ | 130,752 | 10.50% | $ | 124,526 | 10.00 | % | ||||
Tier 1 risk-based capital | 191,977 | 15.42% | 74,716 | 6.00% | 105,847 | 8.50% | 99,621 | 8.00 | % | ||||||||
Tier 1 leverage | 191,977 | 11.85% | 64,785 | 4.00% | 64,785 | 4.00% | 80,982 | 5.00 | % | ||||||||
Tier 1 common equity | 190,158 | 15.27% | 56,037 | 4.50% | 87,168 | 7.00% | 80,942 | 6.50 | % | ||||||||
As of December 31, 2018 | Actual | For Capital Adequacy Purpose | For Capital Adequacy Purposes with Capital Conservation Buffer * | To be Well Capitalized Under Prompt Corrective Action Provisions | |||||||||||||
Company | Amount | Ratio | Amount | Ratio | Amount | Ratio | Amount | Ratio | |||||||||
(Dollars in thousands except ratios) | |||||||||||||||||
Total risk-based capital | $ | 182,316 | 16.73% | $ | 87,164 | 8.00% | $ | 107,592 | 9.88% | $ | 108,954 | 10.00 | % | ||||
Tier 1 risk-based capital | 168,629 | 15.48% | 65,373 | 6.00% | 85,802 | 7.88% | 87,164 | 8.00 | % | ||||||||
Tier 1 leverage | 168,629 | 12.15% | 55,503 | 4.00% | 55,503 | 4.00% | 69,378 | 5.00 | % | ||||||||
Tier 1 common equity | 153,020 | 14.04% | 49,029 | 4.50% | 69,458 | 6.38% | 70,820 | 6.50 | % | ||||||||
Parke Bank | |||||||||||||||||
Total risk-based capital | $ | 181,760 | 16.69% | $ | 87,131 | 8.00% | $ | 107,552 | 9.88% | $ | 108,913 | 10.00 | % | ||||
Tier 1 risk-based capital | 168,078 | 15.43% | 65,348 | 6.00% | 85,769 | 7.88% | 87,131 | 8.00 | % | ||||||||
Tier 1 leverage | 168,078 | 12.10% | 55,569 | 4.00% | 55,569 | 4.00% | 69,461 | 5.00 | % | ||||||||
Tier 1 common equity | 166,639 | 15.30% | 49,011 | 4.50% | 69,432 | 6.38% | 70,794 | 6.50 | % | ||||||||
* The new capital rules require banks and covered financial institution holding companies to maintain a capital conservation buffer of at least 2.5% of risk-weighted assets over and above the minimum risk-based capital requirements. Institutions that do not maintain the required capital buffer will become subject to progressively more stringent limitations on the percentage of earnings that can be paid out in dividends or used for stock repurchases and on the payment of discretionary bonuses to senior executive management. The minimums under Basel III increased by 0.625% (the capital conservation buffer) annually until fully phased in, in 2019. The fully phased-in minimums are 10.5% (Total risk-based capital), 8.5% (Tier 1 risk-based capital), and 7.0% (Tier 1 common equity).
In November 2019, Federal bank regulatory agencies finalized a rule that simplifies capital requirements for community banks by allowing them to optionally adopt a simple leverage ratio to measure capital adequacy, which removes requirements for calculating and reporting risk-based capital ratios for a qualifying community bank that have less than $10 billion in total consolidated assets, limited amounts of off-balance-sheet exposures and trading assets and liabilities, and a leverage ratio greater than 9 percent. The community bank leverage ratio framework will be effective on January 1, 2020.
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Note 14. Other Related Party Transactions
A member of the Board of Directors is a principal of an employee benefits insurance agency that provides all the medical, life and disability insurance coverage for the Company. The cost of these employee benefits for the Company and its employees totaled $867,000 in 2019 and $790,500 in 2018.
Note 15. Commitments and Contingencies
The Company is a party to financial instruments with off-balance sheet risk in the normal course of business to meet the financing needs of its customers. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated balance sheet. The contract or notional amounts of these instruments reflect the extent of the Company’s involvement in these particular classes of financial instruments. The Company’s exposure to the maximum possible credit risk in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and standby letters of credit is represented by the contractual or notional amount of those instruments. The Company uses the same credit policies in making commitments and conditional obligations as it does for on-balance sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require the payment of a fee. The Company evaluates each customer’s credit-worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation. Collateral held varies but may include accounts receivable; inventory; property, plant and equipment and income-producing commercial properties. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Commitments to fund fixed-rate loans were immaterial at December 31, 2019. Variable-rate commitments are generally issued for less than one year and carry market rates of interest. Such instruments are not likely to be affected by annual rate caps triggered by rising interest rates. Management believes that off-balance sheet risk is not material to the results of operations or financial condition. As of December 31, 2019 and 2018, unused commitments to extend credit amounted to approximately $205.1 million and $150.6 million, respectively.
Standby letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. As of December 31, 2019 and 2018, standby letters of credit with customers were $20.8 million and $19.3 million, respectively.
The company also has entered into an employment contract with the President of the Company, which provides for continued payment of certain employment salary and benefits prior to the expiration date of the agreement and in the event of a change in control, as defined. The Company has also entered into Change-in-Control Severance Agreements with certain officers which provide for the payment of severance in certain circumstances following a change in control.
We provide banking services to customers that are licensed by various States to do business in the medical-use cannabis industry as growers, processors and dispensaries. Medical-use cannabis businesses are legal in these States, although it is not legal at the federal level. The U.S. Department of the Treasury’s Financial Crimes Enforcement Network (“FinCEN”) published guidelines in 2014 for financial institutions servicing state legal cannabis businesses. A financial institution that provides services to cannabis-related businesses can comply with Bank Secrecy Act (“BSA”) disclosure standards by following the FinCEN guidelines. We maintain stringent written policies and procedures related to the acceptance of such businesses and to the monitoring and maintenance of such business accounts. We conduct a significant due diligence review of the cannabis business before the business is accepted, including confirmation that the business is properly licensed by the applicable state. Throughout the relationship, we continue monitoring the business, including site visits, to ensure that the business continues to meet our stringent requirements, including maintenance of required licenses and periodic financial reviews of the business.
While we believe we are operating in compliance with the FinCEN guidelines, there can be no assurance that federal enforcement guidelines will not change. Federal prosecutors have significant discretion and there can be no assurance that the federal prosecutors will not choose to strictly enforce the federal laws governing cannabis. Any change in the Federal government’s enforcement position, could cause us to immediately cease providing banking services to the cannabis industry.
At December 31, 2019 and 2018, deposit balances from medical-use cannabis customers were approximately $129.2 million and $253.8 million, or 9.6% and 21.4% of total deposits, respectively, with two customers accounting for 13.6% and 65.9% of the total at December 31, 2019 and 2018. At December 31, 2019 and 2018, there were cannabis-related loans in the amounts of $5.5
35
million and $970,000, respectively. We recorded approximately $183,000 and $51,000 of interest incomes in 2019 and 2018, respectively, related to these loans. The fee incomes for the year ended December 31, 2019 and December 31, 2018 from the commercial deposit accounts of depositors who do business in the medical-use cannabis industry were $1.6 million and $613,000 and are included in service fees on deposit accounts, in the accompanying consolidated statements of income.
In the normal course of business, there are outstanding various contingent liabilities such as claims and legal action, which are not reflected in the financial statements. In the opinion of management, no material losses are anticipated as a result of these actions or claims.
Note 16. Fair Value
Fair Value Measurements
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. In accordance with the Fair Value Measurements and Disclosures (Topic 820) of FASB Accounting Standards Codification, the fair value of a financial instrument is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in many instances, there are no quoted market prices for the Company's various financial instruments. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the instrument.
Fair value is a market-based measurement, not an entity-specific measurement. The fair value guidance provides a consistent definition of fair value, which focuses on exit price in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment. The fair value is a reasonable point within the range that is most representative of fair value under current market conditions. In accordance with this guidance, the Company groups its assets and liabilities carried at fair value in three levels as follows:
Level 1 Input:
1) | Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. |
Level 2 Inputs:
1) | Quoted prices for similar assets or liabilities in active markets. |
2) | Quoted prices for identical or similar assets or liabilities in markets that are not active. |
3) | Inputs other than quoted prices that are observable, either directly or indirectly, for the term of the asset or liability (e.g., interest rates, yield curves, credit risks, prepayment speeds or volatilities) or “market corroborated inputs.” |
Level 3 Inputs:
1) | Prices or valuation techniques that require inputs that are both unobservable (i.e. supported by little or no market activity) and that are significant to the fair value of the assets or liabilities. |
2) | These assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation. |
Fair Value on a Recurring Basis:
The following is a description of the Company’s valuation methodologies for assets carried at fair value on a recurring basis. These methods may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while the Company believes that its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting measurement date.
36
Investments in Available for Sale Securities and Loans Held for Sale:
Where quoted prices are available in an active market, securities or other assets are classified in Level 1 of the valuation hierarchy. If quoted market prices are not available for the specific security or available for sale loans, then fair values are provided by independent third-party valuation services. These valuation services estimate fair values using pricing models and other accepted valuation methodologies, such as quotes for similar securities and observable yield curves and spreads. As part of the Company’s overall valuation process, management evaluates these third-party methodologies to ensure that they are representative of exit prices in the Company’s principal markets. For the AFS loans, the fair value represents the face value of the guaranteed portion of the SBA loans pending settlement. Securities and loans in Level 2 include mortgage-backed securities, corporate debt obligations, collateralized mortgage-backed securities, and SBA loans available for sale.
The table below presents the balances of assets and liabilities measured at fair value on a recurring basis at December 31, 2019 and 2018.
Financial Assets | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
Investment securities and loans held for sale | ||||||||||||||||
As of December 31, 2019 | ||||||||||||||||
Corporate debt obligations | $ | — | $ | 500 | $ | — | $ | 500 | ||||||||
Residential mortgage-backed securities | — | 26,075 | — | 26,075 | ||||||||||||
Collateralized mortgage-backed securities | — | 38 | — | 38 | ||||||||||||
Loans held for sale | 190 | 190 | ||||||||||||||
Total | $ | — | $ | 26,803 | $ | — | $ | 26,803 | ||||||||
As of December 31, 2018 | ||||||||||||||||
Corporate debt obligations | $ | — | $ | 500 | $ | — | $ | 500 | ||||||||
Residential mortgage-backed securities | — | 30,721 | — | 30,721 | ||||||||||||
Collateralized mortgage-backed securities | — | 57 | — | 57 | ||||||||||||
Loans held for sale | 419 | 419 | ||||||||||||||
Total | $ | — | $ | 31,697 | $ | — | $ | 31,697 | ||||||||
For the year ended December 31, 2019, there were no transfers between the levels within the fair value hierarchy.
There were no level 3 assets or liabilities held for the year ended at December 31, 2019 and December 31, 2018.
Fair Value on a Non-Recurring Basis:
Certain assets and liabilities are not measured at fair value on an ongoing basis but are subject to fair value adjustments in certain circumstances (for example, when there is evidence of impairment).
Financial Assets | Level 1 | Level 2 | Level 3 | Total | ||||||||||||
(Dollars in thousands) | ||||||||||||||||
As of December 31, 2019 | ||||||||||||||||
Collateral dependent impaired loans | $ | — | $ | — | $ | 8,460 | $ | 8,460 | ||||||||
OREO | $ | — | $ | — | $ | 4,727 | $ | 4,727 | ||||||||
As of December 31, 2018 | ||||||||||||||||
Collateral dependent impaired loans | $ | — | $ | — | $ | 6,921 | $ | 6,921 | ||||||||
OREO | $ | — | $ | — | $ | 5,124 | $ | 5,124 | ||||||||
All collateral dependent impaired loans have an independent third-party full appraisal to determine the NRV based on the fair value of the underlying collateral, less cost to sell (a range of 5% to 10%) and other costs, such as unpaid real estate taxes, that have been identified. The appraisal will be based on an "as-is" valuation and will follow a reasonable valuation method that addresses the direct sales comparison, income, and cost approaches to market value, reconciles those approaches, and explains the elimination of each approach not used. Appraisals are updated every 12 months or sooner if we have identified possible further deterioration in value.
37
OREO consists of real estate properties which are recorded at fair value. All properties have an independent third-party full appraisal to determine the fair value, less cost to sell (a range of 5% to 10%) and other costs, such as unpaid real estate taxes, that have been identified. The appraisal will be based on an "as-is" valuation and will follow a reasonable valuation method that addresses the direct sales comparison, income, and cost approaches to market value, reconciles those approaches, and explains the elimination of each approach not used. Appraisals are updated every 12 months or sooner if we have identified possible further deterioration in value.
Fair Value of Financial Instruments
The Company discloses estimated fair values for its significant financial instruments in accordance with FASB ASC (Topic 825), “Disclosures about Fair Value of Financial Instruments”. The methodologies for estimating the fair value of financial assets and liabilities that are measured at fair value on a recurring or non-recurring basis are discussed above. The methodologies for estimating the fair value of other financial assets and liabilities are discussed below.
For certain financial assets and liabilities, carrying value approximates fair value due to the nature of the financial instrument. These instruments include cash and cash equivalents, accrued interest receivable, demand and other non-maturity deposits and accrued interest payable.
The Company used the following methods and assumptions in estimating the fair value of the following financial instruments:
Investment Securities: Fair value of securities available for sale is described above. Fair value of held to maturity securities is based upon quoted market prices for identical or similar assets.
Loans Held for Sale: Fair value represents the face value of the guaranteed portion of SBA loans pending settlement.
Loans Receivable: For residential mortgages loans, fair value is estimated using the quoted market prices for securities backed by similar loans, adjusted for differences in loan characteristics. The fair value of other types of loans is estimated by discounting the future cash flows using the risk adjusting current interest rates at which similar loans would be made to borrowers with similar credit ratings and same remaining maturities, adjusted for the liquidity discount and underwriting uncertainty.
Restricted stock: Carrying value of FHLBNY and the Atlantic Central Bankers Bank stocks represent the par values of the stocks
and is adjusted for impairments if any. The carrying value approximated fair value.
Time deposits: The fair value of time deposits is based on the discounted value of contractual cash flows, where the discount rate is estimated using the market rates currently offered for deposits of similar remaining maturities.
Borrowings: The fair values of FHLBNY borrowings, other borrowed funds and subordinated debt are based on the discounted value of estimated cash flows. The discounted rate is estimated using market rates currently offered for debts with similar credit rating, terms and remaining maturities.
For a further discussion of the Company’s valuation methodologies for financial instrument measured at fair value, see the Note 1 - Description of Business and Summary of Significant Accounting Policies of the Consolidated Financial Statements.
Bank premises and equipment, customer relationships, deposit base and other information required to compute the Company’s aggregate fair value are not included in the above information. Accordingly, the above fair values are not intended to represent the aggregate fair value of the Company.
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The following table summarizes the carrying amounts and fair values for financial instruments at December 31, 2019 and December 31, 2018:
December 31, 2019 | Carrying Amount | Fair Value | |||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Financial Assets: | |||||||||||||||||||
Cash and cash equivalents | $ | 191,607 | $ | 191,607 | $ | 191,607 | $ | — | $ | — | |||||||||
Investment securities AFS | 26,613 | 26,613 | — | 26,613 | — | ||||||||||||||
Investment securities HTM | 1,167 | 1,430 | — | 1,430 | — | ||||||||||||||
Restricted stock | 7,440 | 7,440 | — | — | 7,440 | ||||||||||||||
Loans held for sale | 190 | 190 | — | 190 | — | ||||||||||||||
Loans, net | 1,398,938 | 1,393,288 | — | 1,372,317 | 20,971 | ||||||||||||||
Accrued interest receivable | 6,069 | 6,069 | — | 6,069 | — | ||||||||||||||
Financial Liabilities: | |||||||||||||||||||
Non-time deposits | $ | 652,544 | $ | 652,544 | $ | — | $ | 652,544 | $ | — | |||||||||
Time deposits | 686,675 | 692,177 | — | 692,177 | — | ||||||||||||||
Borrowings | 148,053 | 156,479 | — | 156,479 | — | ||||||||||||||
Accrued interest payable | 2,260 | 2,260 | — | 2,260 | — | ||||||||||||||
December 31, 2018 | Carrying Amount | Fair Value | |||||||||||||||||
Total | Level 1 | Level 2 | Level 3 | ||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||
Financial Assets: | |||||||||||||||||||
Cash and cash equivalents | $ | 154,471 | $ | 154,471 | $ | 154,471 | $ | — | $ | — | |||||||||
Investment securities AFS | 31,278 | 31,278 | — | 31,278 | — | ||||||||||||||
Investment securities HTM | 1,113 | 1,292 | — | 1,292 | — | ||||||||||||||
Restricted stock | 5,858 | 5,858 | — | — | 5,858 | ||||||||||||||
Loans held for sale | 419 | 419 | — | 419 | — | ||||||||||||||
Loans, net | 1,222,082 | 1,209,223 | — | 1,187,975 | 21,248 | ||||||||||||||
Accrued interest receivable | 5,191 | 5,191 | — | 5,191 | — | ||||||||||||||
Financial Liabilities: | |||||||||||||||||||
Non-time deposits | $ | 752,512 | $ | 752,512 | $ | — | $ | 752,512 | $ | — | |||||||||
Time deposits | 431,361 | 433,575 | — | 433,575 | — | ||||||||||||||
Borrowings | 118,053 | 118,965 | — | 118,965 | — | ||||||||||||||
Accrued interest payable | 1,390 | 1,390 | — | 1,390 | — | ||||||||||||||
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Note 17. Parent Company Only Financial Statements
Condensed financial information of the parent company only is presented in the following two tables:
Balance Sheets | December 31, | ||||||
2019 | 2018 | ||||||
(Dollars in thousands) | |||||||
Assets: | |||||||
Cash | $ | 2,086 | $ | 2,049 | |||
Investments in subsidiaries | 190,217 | 166,173 | |||||
Other assets | 2 | 3 | |||||
Total assets | $ | 192,305 | $ | 168,225 | |||
Liabilities and Equity: | |||||||
Subordinated debentures | $ | 13,403 | $ | 13,403 | |||
Other liabilities | 1,700 | 1,502 | |||||
Equity | 177,202 | 153,320 | |||||
Total liabilities and equity | $ | 192,305 | $ | 168,225 | |||
Statements of Income | Years ended December 31, | ||||||
2019 | 2018 | ||||||
(Dollars in thousands) | |||||||
Income: | |||||||
Dividends from bank subsidiary | $ | 7,300 | $ | 6,600 | |||
Total income | 7,300 | 6,600 | |||||
Expense: | |||||||
Interest on subordinated debentures | $ | 541 | $ | 491 | |||
Salary | 160 | 160 | |||||
Other expenses | 127 | 122 | |||||
Total expenses | 828 | 773 | |||||
Net Income | 6,472 | 5,827 | |||||
Equity in undistributed income of subsidiaries | 23,369 | 18,997 | |||||
Net income | 29,841 | 24,824 | |||||
Preferred stock dividend and discount accretion | (24 | ) | (446 | ) | |||
Net income available to common shareholders | $ | 29,817 | $ | 24,378 | |||
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Statements of Cash Flows | |||||||
Years ended December 31, | |||||||
2019 | 2018 | ||||||
(Dollars in thousands) | |||||||
Cash Flows from Operating Activities | |||||||
Net income | $ | 29,841 | $ | 24,824 | |||
Adjustments to reconcile net income to net cash provided by operating activities: | |||||||
Equity in undistributed earnings of subsidiaries | (23,369 | ) | (18,997 | ) | |||
Changes in | |||||||
Increase in other assets | (1 | ) | (2 | ) | |||
Increase in accrued interest payable and other accrued liabilities | (21 | ) | (4 | ) | |||
Other | 29 | 19 | |||||
Net cash provided by operating activities | 6,479 | 5,840 | |||||
Cash Flows from Financing Activities | |||||||
Proceeds from exercise of stock options | 48 | 43 | |||||
Payment of dividend on preferred stock and common stock | (6,490 | ) | (5,412 | ) | |||
Net cash used in financing activities | (6,442 | ) | (5,369 | ) | |||
Increase in cash and cash equivalents | 37 | 471 | |||||
Cash and Cash Equivalents, January 1, | 2,049 | 1,578 | |||||
Cash and Cash Equivalents, December 31, | $ | 2,086 | $ | 2,049 | |||
Note 18. Subsequent Events
On January 31, 2020, the Company declared a 10% stock dividend to its common stock shareholders. The stock dividend was paid on March 3, 2020, to stockholders of record as of February 18, 2020. The Company announced the stock dividend before the Company's 2019 financial statements are issued or are available to be issued. The Company is required to retroactively adjust its 2019 financial statements and related prior period earnings per share data. As the result, we retrospectively adjusted 2019 balance sheet, income statement, and equity statement. All prior-period per-share computations presented were also adjusted retroactively.
41
PARKE BANCORP, INC. | PARKE BANK | |
PARKE BANK | SENIOR EXECUTIVE MANAGEMENT | VICE PRESIDENTS |
BOARD OF DIRECTORS | Vito S. Pantilione | Liping Yuan |
Chief Executive Officer and President | Director of Financial Reporting | |
Celestino R. (“Chuck”) Pennoni | ||
Chairman of the Board | John F. Hawkins | Frank Zangari |
Founder and Chairman of | Executive Vice President and CFO | BSA Compliance |
Pennoni Associates | ||
Ralph Gallo | ASSISTANT VICE PRESIDENTS | |
Daniel J Dalton | Executive Vice President and COO | |
Vice Chairman of the Board | Jennifer Chen | |
Retired | Paul E. Palmieri | Renee D’Orazio |
Brown & Brown of New Jersey | Senior Vice President and Chief Credit Officer | Robert Dalton |
Patricia Dilks | ||
Fred G. Choate | Nicholas J. Pantilione | Annice Fanelli |
President of Greater Philadelphia | Senior Vice President and Chief Lending Officer | Roxanne Melfe |
Venture Capital Corporation | Marysharon Mitchell | |
Dolores M. Calvello | Christopher Nealis | |
Arret F. Dobson | Senior Vice President Construction Ln/Portfolio Mgr. | Justin Rader |
President White Oaks Country Club | Joan Santo | |
Linda Kaiser | Juan Taboada | |
Dr. Edward Infantolino | Vice President and Corporate Secretary | |
Retired | ||
President of Ocean Internal | VICE PRESIDENTS | BANKING OFFICES |
Medicine Associates, P.A. | www.parkebank.com | |
Kathleen Conover | ||
Anthony J. Jannetti | Retail Operations | WASHINGTON TOWNSHIP, NJ |
President of Anthony J. Jannetti, Inc. | Main Office | |
Denise DiPaola | 601 Delsea Drive | |
Jeffrey H. Kripitz | Business Development Officer/Marketing | (856) 256-2500 |
Retired | Kristen Tartaglia, Manager | |
Owner of Jeff Kripitz Agency | Gil Eubank | |
Loan Operations | 567 Egg Harbor Road | |
Elizabeth A. Milavsky | (856) 582-6900 | |
Retired | Ginger Heckman | Roxanne Melfe, Manager |
Executive Vice President and COO | Operations | |
COLLINGSWOOD, NJ | ||
Vito S. Pantilione | Anthony Lombardo | 1150 Haddon Avenue |
President and Chief Executive officer | Controller | (856) 858-0825 |
Parke Bank and Parke Bancorp Inc | Justin Radar, Manager | |
Martin Mabe | ||
Jack C. Sheppard, Jr. | Commercial Lending | GALLOWAY TOWNSHIP, NJ |
Senior Vice President with Arthur J. | 67 East Jimmie Leeds Road | |
Gallagher & Company | James Meadows | (609) 748-9700 |
Commercial Lending | Juan Taboada, Manager | |
William Mohnacs | NORTHFIELD, NJ | |
Commercial Lending | 501 Tilton Road | |
(609) 646-6677 | ||
Robert Orsini | Christopher Nealis, Manager | |
IT manager | ||
PHILADELPHIA, PA | ||
Lisa Perkins | 1610 Spruce Street | |
Operation Coordinator | (215) 772-1113 | |
Jennifer Chen, Manager | ||
Marlon Soriano | ||
Commercial Lending | 1032 Arch Street | |
(215) 982-1975 | ||
James Talarico | Jennifer Chen, Manager | |
Collections | ||
Kristen Tartaglia | ||
Business Development/Branch Manager | ||
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SHAREHOLDER INFORMATION | ||
ADMINISTRATIVE OFFICES | STOCK TRANSFER AND REGISTRAR | |
601 Delsea Drive | Shareholders wishing to change the name, address or | |
Washington Township, NJ 08080 | ownership of stock, to report lost certificates or to | |
(856) 256-2500 | consolidate accounts are asked to contact the Company's | |
www.parkebank.com | stock registrar and transfer agent directly: | |
ANNUAL MEETING OF SHAREHOLDERS | COMPUTERSHARE | |
The Annual Meeting of Shareholders will be held on | Investor Services | |
April 21, 2020 at 10:00 a.m. at Terra Nova Restaurant, | P.O. Box 43078 | |
590 Delsea Drive, Sewell, New Jersey. | Providence, RI 02940-3078 | |
1-800-942-5909 | ||
INVESTOR RELATIONS | www.computershare.com | |
Copies of the Company’s earnings releases and | ||
financial publications, including the annual report on | INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM | |
Form 10-K (without exhibits) filed with the Securities | RSM US LLP | |
and Exchange Commission are available without | 518 Township Line Road, Suite 300 | |
charge by contacting: | Blue Bell, PA 19422 | |
Annice Fanelli, Assistant Vice President | SPECIAL COUNSEL | |
(856) 256-2500 or | Jones Walker LLP | |
investorsrelations@parkebank.com | 499 South Capitol Street, SW | |
Suite 2600 | ||
Washington, DC 20003 | ||
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